There are few companies that better represent what a blue-chip stock is than Coca-Cola (KO +0.28%). The world's leading beverage company has been around since 1892 and has built one of the world's most recognizable brands.
Through decades of constant growth and admirable performance, Coca-Cola has positioned itself as a key investment in many people's portfolios. For investors wondering if Coca-Cola is a buy, sell, or hold, I think it easily checks the box of a buy.
NYSE: KO
Key Data Points
A history of not getting complacent
Coca-Cola's flagship soda is easily its best seller, but its portfolio spans across a number of categories, including coffee, tea, juices, plant-based drinks, sparkling soft drinks, water, and alcohol ready-to-drink (RTD) beverages. A key to longevity for any business is constant innovation and non-complacency, and Coca-Cola has been on the right side of both.
A prime example would be Coca-Cola's entrance into the alcohol market. In 2018, Coca-Cola launched its first RTD alcoholic beverage in Japan (its first alcoholic beverage since the 1970s). As the company noticed consumer preferences shifting toward RTD alcoholic beverages, it has since increased its portfolio to 27 alcoholic offerings.
Keeping consumers at the forefront and being able to adjust to their changing preferences has been key to Coca-Cola's market dominance across different categories. Cola-Cola has a "transformational innovation team" whose job is primarily to introduce beverages in emerging categories, and the specialized focus seems to be paying off.
Operational focus helps with its great margins
Although Coca-Cola's biggest competitor, PepsiCo (PEP +0.64%), brings in almost double its revenue, their profits are routinely similar. That's a testament to Coca-Cola's impressive margins.
KO Profit Margin data by YCharts
A large part of why Coca-Cola can operate with such high margins is because of its sole focus on beverages (PepsiCo also sells food products). Instead of spreading itself thin, Coca-Cola can focus its resources, expertise, and strategies on continuously improving and expanding its core business.
By focusing on beverages, Coca-Cola can also take advantage of economies of scale, negotiate better supplier terms, and hone its innovation specifically for evolving consumer preferences in the beverage sector.
A dividend that's as secure as they come
In the past 20 years, Coca-Cola has returned just below 150% when looking at its stock price. When you look at its total returns, this percentage jumps to over 350%, thanks to the company's lucrative dividend.
Coca-Cola's current quarterly dividend is $0.46 per share, with a trailing 12-month dividend yield of around 3.3%. That's more than double the S&P 500's dividend yield of around 1.6%.
Perhaps more significant than Coca-Cola's current dividend is its emphasis on increasing it yearly. Coca-Cola has increased its yearly dividend for 61 straight years -- the 10th longest streak in the U.S. stock market.
KO Dividend data by YCharts
Coca-Cola's dividend is one of its main selling points for investors, but a high dividend by itself isn't enough. The dividend needs to be sustainable, and Coca-Cola checks that box.
Its dividend payout ratio -- which tells you how much of its earnings it's paying out in dividends -- is 56%, meaning the company has plenty of breathing room to keep increasing it without jeopardizing other areas of its business.
Don't overthink your choice
I often say that investors have a bad habit of overthinking some investments. Sometimes, it comes down to asking yourself a single question: "Is this a company that I feel comfortable buying and holding on to for decades?" Personally, the answer is yes for me with Coca-Cola.
Coca-Cola has strong financials, a competitive moat not likely to be threatened anytime soon, and a competent management team that has shown it has the ability to navigate ever-changing market conditions. Investors considering Coca-Cola can feel confident in its proven track record, and its path toward continued long-term success.
