Coca-Cola (KO +0.64%) needs no introduction. It's a mega-cap company with a market value of $302 billion. It sells over 200 varieties of drinks. A whopping 2.2 billion servings of its beverages are consumed every day, and it has a presence in over 200 countries and territories, essentially blanketing the globe with its thirst-quenching liquid products.
The beverage stock has a place in certain investors' portfolios. But is the business your ticket to becoming a millionaire? Let's find out.
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Coca-Cola's brand strength supports its ongoing success
Coca-Cola's defining attribute is its brand name. This is supported by unrivaled distribution and reach, marketing prowess that resonates strongly with consumers, and consistency of product quality. Without a doubt, this is one of the most recognizable brands out there.
The great Warren Buffett, who many view as the best investor of all time, knows a good brand when he sees one. His belief shows up in Berkshire Hathaway's portfolio, which owns 400 million shares in Coca-Cola, making it the conglomerate's fourth largest position.
The brand supports Coca-Cola's pricing power, as management is able to consistently ask customers to pay more over time. During the third quarter, Coca-Cola's sales benefited from 4% price growth. This provides a boost to revenue, which doesn't get much help from unit volume growth.
Profits, as a result, have been impressive. Coca-Cola relies on third-party bottlers and distribution partners that take care of a lot of the capital-intensive work and do the heavy lifting. The business has posted a trailing 10-year operating margin of 26.4%.
Investors don't need to worry about the business being disrupted
An overlooked trait that investors must know about is Coca-Cola's staying power. This is extremely valuable, as technology is forcing the economy to move and change so fast. Companies that are able to remain relevant over decades stand out from the crowd.
Here's where Coca-Cola shines. It's been around for a very long time, with its founding dating back to 1886. Over the past century-plus time horizon, its operations haven't really changed much, except for expanding the product portfolio and entering new markets, which is a natural evolution. The industry Coca-Cola is in -- non-alcoholic ready-to-drink beverages -- isn't prone to technological disruption like other pockets of the economy are. Being boring means that things can remain stable, which is a feature.
These days, it seems like every motivated and well-funded entrepreneur wants to work on artificial intelligence, an area attracting much funding and attention. There aren't a lot of people looking to shake up the market for soft drinks. This plays to Coca-Cola's advantage, as it should still be dominating the industry decades into the future.
NYSE: KO
Key Data Points
This stock is only for risk-averse investors
As mentioned, Coca-Cola's profitability is spectacular. The company generates robust free cash flows, which totaled $8.5 billion on a non-GAAP basis in the last three quarters. The leadership team returns a lot of this capital to shareholders, primarily through dividends. In fact, Coca-Cola is a Dividend King, which means it has raised dividends for at least 50 straight years.
The business has an unbelievable streak going, having increased its dividend payout for 63 straight years. In the past 10 years alone, the dividend has climbed by 46%. This makes Coca-Cola a top choice for dividend investors.
Coca-Cola's predictability and stability make it a perfect stock for risk-averse investors who don't desire much growth potential. Its track record reveals that it won't provide outsized gains, with the total return coming in at 122% in the past decade (as of Dec. 18), well short of the S&P 500's performance.
That trend is likely to continue. Over the next decade and beyond, Coca-Cola probably won't produce returns that beat the overall market. Consequently, it's not a millionaire-maker stock, either.
