Coca-Cola (KO +0.28%) is an outstanding business. No one would argue with this view. It has a long history of success, dominates the non-alcoholic ready-to-drink market, and has one of the world's most recognizable brands. It also doesn't hurt that famed investor Warren Buffett has long been a fan of the company and its flagship product.
The business does a wonderful job at providing a steady income stream for investors. Is Coca-Cola still one of the best dividend stocks to buy and hold forever?
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Huge profits fund dividend increases
There is no doubt that this remains one of the best dividend stocks for long-term investors. Coca-Cola's Board of Directors raised its dividend payout last February, marking the 63rd straight year it implemented a hike. The streak should continue this year. This makes Coca-Cola a Dividend King, a list that includes businesses that have increased dividends annually for at least 50 consecutive years.
It generates robust profits to fund these payouts to investors. In the past five years, the company's quarterly operating margin has averaged a stellar 26.5%. And analysts believe it will rake in $11.9 billion in free cash flow in 2026.
There is minimal risk of Coca-Cola's profits dwindling. The business operates in a very boring part of the economy that doesn't experience much change or tech disruption. This bodes well for its staying power over many decades. And it makes Coca-Cola a safe and stable stock to own, which gives investors peace of mind.
The business has proven pricing power, owing to its incredible brand strength. Consistently offering high-quality products, unrivaled distribution capabilities, and powerful marketing helps drive customer affinity and loyalty. This allows Coca-Cola to constantly raise prices, a rare trait that all companies wish they possessed.
NYSE: KO
Key Data Points
Will Coca-Cola stock beat the market?
With shares trading at a price-to-earnings ratio of 23.3, Coca-Cola does not look expensive today. This valuation gives investors a solid entry point to add the business to their portfolios. But will Coca-Cola beat the market over the long term? I'm not so sure about that.
The stock has generated a total return of 132% in the past decade. This comes up well short of the 330% total return of the S&P 500. There's no reason to believe this trend will change. Coca-Cola is a very mature business. And it has a presence in over 200 countries and territories, which doesn't leave room for expansion. So, it's not going to register rapid growth that can support outsized gains for shareholders.
Only dividend investors will be the ones interested in buying and holding the stock.
