Coca-Cola (KO) sells some of the most popular drinks on the face of the planet, including its namesake soft drink, as well as Dasani, Powerade, and Vitaminwater, among many other brands. The company's products are available in more than 200 countries and territories.

Through Berkshire Hathaway, famous investor Warren Buffett has long been a Coca-Cola shareholder. But where will this top beverage stock be in five years? The answer might surprise you.

No threat of disruption

With $45 billion in trailing-12-month sales, Coca-Cola commands a leading share (roughly 44%) of the global market for nonalcoholic ready-to-drink beverages. If we look out to 2029, there is almost zero chance that the company's dominant industry position will be affected.

Coca-Cola's management team says that the business owns 26 different brands that generate at least $1 billion in annual revenue. This highlights just how much of a stranglehold it has on this part of the economy.

The key to the company's success is its strong brand recognition, which makes up Coca-Cola's economic moat. This is exemplified by its superior gross margin, which has averaged 59.7% in the last five years. 

Besides the brand, another factor that insulates the company from the threat of disruption is that this is a boring industry. Coca-Cola doesn't operate in the tech sector, which every year attracts tons of fresh capital and entrepreneurs looking to challenge the status quo. The beverage industry is pretty stable.

Returning cash to investors

Coca-Cola operates in an extremely mature industry, with limited growth prospects and minimal opportunities to invest capital back into the business. Typically, companies in this situation generate outsize cash profits. And that is definitely the case here.

The business produced $7.9 billion in free cash flow through the first three quarters of 2023. And this will continue allowing the management team to return capital to shareholders. Combined, Coca-Cola spent $5.3 billion on dividends and buybacks in the last nine months, which boosts shareholder returns.

While neither the gross margin nor the operating margin has demonstrated an ability to expand in recent years, what is encouraging is just how consistent they've been. This was despite a global pandemic, supply chain bottlenecks, and ongoing economic uncertainty. This steadiness bodes well for Coca-Cola's future profitability.

Don't expect market-beating returns

Over the past five years, a $1,000 investment in Coca-Cola would be worth under $1,500 today, including dividends. For comparison's sake, the same cash outlay in an S&P 500 index fund would be worth almost $2,000. If we look back 10 years, it's the same story.

There's no reason to believe that this type of performance won't continue. Investors hoping that this leading beverage business will outperform the overall market over the next five years should seriously temper their expectations. I just don't see this playing out, given the stock's historical track record.

However, anyone interested in adding a mature and stable Dividend King to their portfolio should take a closer look at Coca-Cola.