Costco Wholesale (COST 0.23%) and Coca-Cola (KO +0.13%) are both reliable long-term performers. Right now, however, the two stocks are heading in vastly different directions. Costco is trending lower, off from its 52-week high by around 15%. Coca-Cola is trending higher, below its all-time highs by just 3% or so.
Here's why more investors will probably prefer Coca-Cola right now.
Coca-Cola beats Costco as a dividend stock
Even after the recent drawdown in Costco's share price, it's still only offering a dividend yield of 0.6%. That's half the level of the S&P 500, and well below Coca-Cola's nearly 2.9% yield. Coca-Cola's yield is only about average for the soda maker in recent years, but it is a touch better than the 2.7% of the average consumer staples stock, using the Consumer Staples Select Sector SPDR ETF as an industry proxy.
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From a yield-only perspective, Coca-Cola is the winner. However, it also excels in dividend consistency, having increased its dividend annually for over six decades. That streak is enough to make it a Dividend King. While Costco is no slouch on the dividend front, with 21 annual dividend hikes behind it, it's still nearly three decades away from achieving Dividend King status.
Coca-Cola beats Costco as a value stock
When you examine the valuations of Coca-Cola and Costco, Coca-Cola again emerges as the top performer. Currently, Coca-Cola's price-to-earnings (P/E) and price-to-book value (P/B) ratios are both below their five-year averages. Its price-to-sales (P/S) ratio is roughly even with its five-year average.
In comparison, Costco's P/S, P/E, and P/B ratios are all above their five-year averages, despite the 15% decline in its stock price. From a valuation perspective, Costco looks expensive and Coca-Cola looks fairly priced to a little cheap.
NYSE: KO
Key Data Points
Costco beats Coca-Cola from a growth perspective
Dividend lovers and value investors will probably prefer Coca-Cola over Costco right now. However, growth and dividend growth investors may be tempted to opt for Costco. Coca-Cola's average annualized dividend growth over the past decade was a healthy 5% or so. However, Costco's is double that, with annualized dividend growth of approximately 12% over the past decade. The actual dividend is lower, but the dividend growth is way more attractive.
Looking simply at growth, Coca-Cola's revenue has essentially remained flat over the past decade, while its earnings rose by a little over 4% per year on an annualized basis. That's not hugely compelling, even though the company is still growing its earnings. Costco's revenue grew at an annualized rate of around 9% over the last decade, with its earnings expanding at a roughly 13% annualized clip.
Costco's growth story is a lot more interesting, as it benefits from opening new stores as it expands geographically. Coca-Cola, in comparison, has pretty well saturated the global beverage market. Modest, though slow and steady, earnings growth is probably the best you can expect.
NASDAQ: COST
Key Data Points
What's interesting about Costco today is that its shares are down approximately 15%. This is the seventh such drawdown over the past decade. Although the last drawdown went a lot further, pulling the stock down over 20% and into its own personal bear market, history indicates that Costco will eventually rebound and push to higher highs. If you think in decades, not days, Costco is probably an attractive growth stock, even if you end up paying a premium for the shares.
Coca-Cola is the better deal
Coca-Cola and Costco both operate good businesses, though they are drastically different companies. From a dividend investor's point of view and from the guise of a value investor, Coca-Cola is likely to be a more attractive investment than Costco today.
From a growth investing perspective, however, Costco emerges as the long-term winner. Just understand that you will pay a premium if you purchase the stock today. If that's not OK with you, then put it on your wishlist and hope that the current 15% price decline keeps going. If the drawdown reaches 20%, the stock might become a little more interesting.
