Coca-Cola (KO 1.47%) is one of the most well-recognized companies on Earth. It operates on a global scale, and its namesake brand is the leader in the carbonated beverage niche of the broader beverage industry. It is, without a doubt, a well-run company. But will buying Coca-Cola today set you up for life?
What does Coca-Cola do?
Coca-Cola is a $300 billion market cap consumer staples giant. It is highly specialized in that it only operates in the beverage subsector. That said, its beverages cover a broad range of products, from its iconic colas to the Costa chain of coffee shops. It is even testing out some alcoholic beverages right now with its hard seltzer line under the Topo Chico nameplate.
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The company has a long and successful history. There are a number of ways that could be highlighted, but one of the best examples is Coca-Cola's status as a Dividend King. The company has increased its dividend annually for 63 consecutive years. That is an achievement that requires a strong business model that gets executed well in good markets and bad ones. A company simply doesn't accidentally become a Dividend King.
There are headwinds today for Coca-Cola to contend with, notably including a push toward healthier fare among consumers. If history is any guide, the consumer staples giant will adjust its products to the new environment in time. This is simply what successful companies in the sector have to do to remain relevant over the long term. Coca-Cola has ranked among the most relevant companies in the staples sector for decades.
NYSE: KO
Key Data Points
Can buying Coca-Cola set you up for life?
Coca-Cola's ability to set you up for life really depends on what you are trying to achieve. First off, it would not be a mistake for most investors to buy this company and hold it for the long term. Given the company's long and successful history, if you own it long enough, the outcome is highly likely to be positive. But the stock's valuation is a little high today.
To put some numbers on that, the price-to-sales, price-to-earnings, and price-to-book value ratios are all above their five-year averages. None of these more traditional valuation metrics are hugely out of line, but they all clearly hint that Coca-Cola is fully priced to a little expensive. If you buy it today, you have to be prepared for either a pullback in price or for the company's business performance to catch up with the stock's valuation. Either way, the near term could be less than rewarding performance-wise.
This brings up the dividend, with the dividend yield at roughly 2.8%. That is near the lowest levels of the past decade, buttressing the view that the stock is a bit pricey today. Given Coca-Cola's status as a Dividend King, buying it will likely mean a lifetime of reliable and growing dividend payments. However, you are paying a premium for that income.
Safety first is the order of the day
One of the interesting things about Coca-Cola is that it is seen, perhaps understandably, as a safe haven investment. The stock has risen about 15% so far in 2025, while the S&P 500 index (^GSPC 0.56%) has declined around 10% amid economic and market uncertainty. That's a 25 percentage point outperformance, largely thanks to investors shifting into a defensive posture.
Is buying Coca-Cola a mistake? Probably not. Does the current outperformance and valuation suggest you may need to own it for a longer time to see a material benefit to your wealth? Probably yes. But Dividend King Coca-Cola is the kind of company a dividend investor buys and holds for the long term, so perhaps paying a premium during a market sell-off won't be such a big deal for you.
