Coca-Cola (KO 1.23%) is often considered an evergreen stock for long-term investors. It's one of the largest soda makers in the world, and it also sells a wide range of non-carbonated beverages like fruit juice, tea, bottled water, and sports drinks.
Over the past 40 years, Coca-Cola generated a whopping total return (which includes its reinvested dividends) of 13,220%. It's also been one of Warren Buffett's top holdings for Berkshire Hathaway since 1988. So today, I'll explain why investors still love Coca-Cola with five simple charts.
Image source: Getty Images.
1. Its stable organic revenue growth
You might initially think Coca-Cola's business is shrinking because its annual revenue fell from $46.85 billion in 2013 to $45.75 billion in 2023. However, that decline was caused by the divestments of some of its regional bottling operations.
So to get a clearer picture of its underlying growth, investors should track Coca-Cola's organic revenue, which excludes all the noise from its divestments and acquisitions. As the following chart illustrates, its organic revenue declined in 2020 as the pandemic shut down a lot of restaurants, but it bounced back over the following three years.
Coca-Cola's robust growth in 2023 also shows that it's resistant to inflation and other macro headwinds, and it expects its organic revenue to rise another 8%-9% in 2024.
2. Its steady comparable operating margin
Coca-Cola's comparable operating margin, which also excludes its divestments and acquisitions, expanded from 27.9% in 2019 to 29.1% in 2023.
Inflation drove up its operating expenses last year, but it offset that pressure by reducing its head count and raising its prices. That resilience reinforces the bullish notion that Coca-Cola is an all-weather stock that can withstand tough recessions.
3. Its stable comparable EPS growth
From 2019 to 2023, Coca-Cola boosted its comparable earnings per share (EPS) at a compound annual growth rate (CAGR) of 6% -- even as it endured the COVID-19 pandemic, inflation, geopolitical conflicts, and currency headwinds from a strong dollar.
Data source: Coca-Cola. Chart by author.
For 2024, it expects to increase its comparable EPS by 5%-6%. At $65 a share, Coca-Cola's stock still looks reasonably valued at 23 times that estimate.
4. It returns most of its free cash flow to its investors
Coca-Cola's annual free cash flow (FCF) fluctuates from year to year, but it's still steadily risen from $8.4 billion in 2019 to $9.7 billion in 2023. It also usually returns most of that cash to its investors through its dividends and buybacks.
Data source: Coca-Cola. Chart by author.
It spent 100% of its annual FCF on $8.0 billion in dividends and $1.7 billion in net buybacks last year, and it expects to generate $9.2 billion in FCF in 2024.
5. It's a Dividend King
Coca-Cola's stable growth has enabled it to raise its dividend annually for 62 consecutive years, making it a Dividend King. These elite companies have maintained a streak of annual dividend hikes for at least 50 straight years.
Source: YCharts.
Coca-Cola's forward yield of 3% might not seem too impressive today, especially when short-term CDs are still paying more than 5% yields, but it should become more attractive as interest rates decline. Coca-Cola's annual dividend hikes should at least keep pace with inflation -- and reinvesting those dividends can generate big compound returns for long-term investors.
For example, a $10,000 investment in Coca-Cola 10 years ago would be worth $15,300 today and pay out $450 in annual dividends. But if you had reinvested those dividends, your investment would have grown to $21,400 and be paying $635 in annual dividends -- which could then be automatically reinvested to generate even bigger compound gains.
So is Coca-Cola right for your portfolio?
Coca-Cola is a well-balanced consumer staples stock that generates stable returns. It won't dazzle any growth-oriented investors, but it should hold steady in bull markets and remain a popular safe-haven stock during bear markets.
