It might seem like a risky time to buy new stocks. The S&P 500 index is hovering near its record highs and looks expensive at 30 times earnings, and high Treasury yields, unpredictable tariffs, trade wars, geopolitical conflicts, and other macro headwinds could compress those valuations.
But if I could only buy one stock in this frothy market, I'd stick with Coca-Cola (KO +0.25%). This blue chip stalwart is also trading near its all-time high, but it's still a great buy for four simple reasons.
1. A recession-resistant business model
Coca-Cola might seem like a wobbly investment because soda consumption rates are declining worldwide. But over the past few decades, it diversified its portfolio with more brands of bottled water, fruit juices, teas, sports drinks, energy drinks, coffee, and even alcoholic beverages to curb its dependence on sugary sodas. It also refreshed its flagship sodas with new flavors, healthier versions, and smaller serving sizes to attract younger consumers.
Image source: Getty Images.
Coca-Cola only sells the concentrates and syrups for those drinks, while its independent bottling partners produce and sell the finished beverages. That capital-light model enables Coca-Cola to maintain high gross margins, generate stable earnings growth, and quickly scale up its business across its higher-growth countries. It also allows the company to focus more on marketing its drinks and strengthening its key relationships with retailers and restaurants.
That evergreen business model is designed to withstand tough economic downturns. From 2004 to 2024, its earnings per share (EPS) rose at a compound annual growth rate (CAGR) of 4.6% on a split-adjusted basis -- even as the Great Recession, the pandemic, and other headwinds rattled the markets. That makes it a good stock to buy, hold, and forget.
2. Predictable dividend hikes
Coca-Cola's stable earnings growth has enabled it to raise its dividends annually for 63 consecutive years. That makes it a Dividend King -- the elite title given to publicly traded companies in the U.S. that have raised their payouts for at least 50 straight years.
The company's trailing payout ratio of 67% indicates that it spent just over two-thirds of its EPS on its dividend payments over the past 12 months. Analysts expect its EPS to rise 23% to $3.02 this year and easily cover its forward dividend rate of $2.04, so it should keep raising its dividends for the foreseeable future.
NYSE: KO
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3. Its yield will attract more income-oriented investors
Coca-Cola's forward yield of 2.9% might not seem too impressive right now, especially when the 10-Year Treasury yield is hovering at about 4.1%. Those yields remain stubbornly high even after the Federal Reserve cut its benchmark rates five times in 2024 and 2025, mainly because those rate cuts were already priced in before the actual announcements. Expectations for sticky inflation and the issuance of even more government debt to cover fiscal deficits are exacerbating that pressure.
But over the next few years, those Treasury yields should decline as that pressure eases. When that happens, the 10-Year Treasury should generate a lower yield than Coca-Cola again, and more income-seeking investors should rotate back toward the soda maker's higher-yielding stock.
4. It looks more reasonably valued than the S&P 500
From 2024 to 2027, analysts expect Coca-Cola's EPS to grow at a CAGR of 8.7% as it launches new products, sells more premium brands (like Topo Chico) in its developed markets, and expands more aggressively in its higher-growth emerging markets. It also plans to use AI to optimize its product development, testing, and marketing capabilities.
Coca-Cola stock trades at 24 times its trailing earnings and 22 times its forward earnings. It isn't a screaming bargain, but it still looks more reasonably valued than the S&P 500. That's why it should continue to attract more investors as a safe haven play -- and why it's one of the only stocks I'd recommend buying right now.
