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Seeking rock-solid security with an attractive yield? Coca-Cola offers these qualities in spades, but the company also faces notable challenges. Take a deep dive to see if this stock is right for you.
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For good reason, soft-drink giant Coca-Cola (KO 0.01%) is one of Warren Buffett's favorite stocks. The company delivers robust sales in pretty much any economy, sending tons of cash back to investors through a generous dividend policy.
But with a year-to-date 4% dip while the S&P 500 is up 16% over the same period, Coke investors are missing out on a strong market surge. Some might wonder if it's time to pop the tab on this stock -- or maybe it's better to keep it on ice.
Let's dive into the world's largest beverage company to see whether Coca-Cola is a buy, sell, or hold today.
There are many reasons to like Coca-Cola's business performance amid a turbulent American and global economy. The recently published second-quarter report highlighted the following virtues:
With a 3% dividend yield and a six-decade streak of annual payout increases, Coca-Cola is a Dividend King that offers an attractive income stream for investors. This is one of the main reasons why Buffett says he'll never sell a single share of Berkshire Hathaway's 400 million stubs.
The Coca-Cola position Buffett has left unchanged since 1994 generated $704 million in dividend payouts last year. That's an effective yield of 54%, proving the power of playing the long game with Dividend Kings.
Image source: Getty Images.
If someone tells you everything is perfect, they're probably trying to sell you something that doesn't work. Like every other business on the planet, Coca-Cola also faces significant challenges today.
A 5% drop in the stock price isn't enough to make me lose my taste for this classic beverage giant. If anything, it's a welcome price correction.
Coca-Cola comes with a strong balance sheet and a plethora of popular brands. The company has a long and successful history of adapting to ever-changing consumer tastes and global market conditions.
As for the stock itself, Coca-Cola is trading at the perfectly reasonable valuation ratios of 22x earnings and 6x sales. These metrics are a stone's throw away from their 10-year averages, on the lower side. So I'm not looking at a no-brainer buy signal on an undervalued stock here but, instead, a comfortable entry point for a long-term investment. Just don't expect any quick fireworks or a rapid rebound -- Coca-Cola's stock is neither a bargain nor a ripoff at these prices.
All together, these qualities make the company a solid investment choice for patient investors.
This could be your next buy if you want rock-solid security and an attractive dividend yield. Coca-Cola won't be a hot growth stock that sets the market on fire, but it doesn't have to be. It's a steady, reliable player that offers a refreshing blend of stability and income. While it may face near-term pressures, Coca-Cola's long-term prospects taste as sweet as ever.