Coca-Cola (KO -0.50%) is one of the largest consumer staples companies on the planet. It has an iconic name, which it shares with its top product. If you are worried about the lofty level of the S&P 500 index (^GSPC 0.12%) today, Coca-Cola's valuation is actually rather attractive. But the real reason for you to trust this company can deliver is actually more fundamental.
What does Coca-Cola do so well?
The big reason to expect Coca-Cola to produce reliable results in the future is, largely, because it has produced reliable results historically. After all, this Dividend King didn't build its over five-decade-long record of annual dividend increases by accident. Simply put, it has the marketing, distribution, and innovation chops to compete head to head with any competitor. But that's all sitting on the foundation. Coca-Cola basically sells expensive water, which is a life necessity.
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Consumer staples makers like Coca-Cola make products that are seen as necessities, sell for modest prices, and are purchased regularly regardless of the economic environment. Brand loyalty is a key differentiator, too, with Coke one of the most sought-after beverages in homes and restaurants. You need to drink, and Coca-Cola sells what is, really, an affordable luxury. Even a recession isn't likely to push a loyal consumer to give up their Coke.
What's interesting is that the stock has sold off around 10%, pushing its dividend yield up to an attractive 3.1% (versus a tiny 1.2% for the S&P 500 index). Meanwhile, the business is performing fine, with organic sales growth of 5% in the second quarter. Now add in price-to-sales and price-to-earnings ratios that are below their five-year averages, and the story is complete.
Reasonable price, attractive yield, and, the big one, a strong business selling a life necessity at a wide profit margin. This looks like a stock built to deliver for years to come.
