Soft drink giant Coca-Cola (KO +0.19%) can be a polarizing stock. Longtime owners absolutely love the company's rock-steady business and generous dividend. Newer investors are often less impressed by Coke's modest growth prospects.
Is Coca-Cola stock a good buy today? That depends on your investment style and expectations. Let me walk you through the ups and downs of buying Coca-Cola shares in the summer of 2024.
NYSE: KO
Key Data Points
Coca-Cola's long history of rewarding shareholders
Longtime shareholders love their Coca-Cola stock for good reasons. The company runs a very simple business, generates lots of cash profits, and shares a hefty portion of those cash flows with investors in the form of dividends. Coca-Cola has sent out quarterly dividend checks for 63 years, and the payout has increased a little bit every year.
That's a winning recipe for building wealth in the long run. Much-admired investor Warren Buffett started his Coca-Cola position in 1988 and hasn't bought or sold another share since 1994. The original investment adds up to $1.3 billion. This year, Buffett's Coke position is raking in $776 million in dividend payments. That's an effective yield of 60%, but it took several decades to achieve that lofty effective dividend yield. If you have held Coca-Cola stock since childhood, you should just leave it alone and let the dividends do their financial magic.
Should you buy Coca-Cola stock today?
So Coca-Cola is an automatic "hold" for many existing investors. The older your Coke stake is, the better! That effective dividend yield keeps rising every year.
But what about brand-new investors? Is this the right time to start a long-term income investment, or is it too easy to find better ideas elsewhere?
This is most certainly not a get-rich-quick story. Coca-Cola's sales have shown a compound annual growth rate (CAGR) of just 5.7% over the last five years. The coronavirus pandemic was not kind to this company, especially in the more lucrative category of away-from-home sales.
It is a very stable business, though. Coca-Cola quickly got back on its feet after an initial health crisis effect. Consumer tastes can vary wildly over time, but this company always seems to have something popular on tap. Beyond the Coca-Cola, Sprite, and Fanta flagship brands, the company also manages several healthier beverages. Dasani bottled water, Powerade sports drinks, and Minute Maid juices can pick up the slack when sweetened soft drinks are falling out of favor.
Moreover, Coca-Cola has an indirect interest in the fast-growing energy drink market through a long-standing distribution partnership with Monster Beverage (MNST 0.13%). Coca-Cola also owns 20% of Monster's more growth-oriented stock.
There's more fizz in Coca-Cola's business model than you might have thought. The company has a robust portfolio of popular brands, is not afraid to try new ideas, and relies on a system of bottling partners around the world. It's a low-risk and asset-light management style.
Final verdict: Coca-Cola isn't a slam-dunk "buy" right now
All things considered, Coca-Cola is a stock that you buy with your eyes fixed on the long-term horizon. This company isn't going away anytime soon, and neither are its dividends. So you can start a Coke position today, perhaps add more shares over time in a dollar-cost averaging strategy, and wait for the dividends to grow powerful in the long run.
That being said, Warren Buffett probably wouldn't have started a Coca-Cola investment at this point, given his preference for undervalued companies. The stock isn't a screaming buy from a valuation perspective, trading at 29 times earnings and 34 times free cash flow. This doesn't look like the right time to get started with Coca-Cola stock, but you may want to keep an eye out for a lower-priced entry point.
