It's impossible to overstate just how much Coca-Cola (KO +0.35%) dominates the worldwide market for soft drinks. It sells more than 200 different beverage varieties. Its products are available in over 200 countries and territories. And a whopping 2.2 billion servings of its drinks are consumed every single day. This is a giant in the industry.
That's an indication of the strength of the company. Buy where will this beverage stock be in three years?
Image source: Getty Images.
Expect the business to keep up its steady gains
Coca-Cola operates in the boring and mature world of soft drinks. Therefore, its business isn't undergoing rapid and unpredictable change. It's a steady performer that can add stability to investment portfolios.
Three years from now, the company will look almost identical to the way it does today. The best part is that shareholders don't need to concern themselves with economic growth, interest rates, or geopolitical tensions. Demand for Coca-Cola products is durable.
Wall Street consensus analyst estimates call for revenue to increase at a compound annual growth rate of 3.8% between 2024 and 2027. This is a reasonable outlook, in my opinion. And it's probably the pace that Coca-Cola will grow over the long term.
The company's brand strength will shine
The key to Coca-Cola's enduring success is its brand, which supports its economic moat. This is perhaps Warren Buffett's favorite quality, as he built up Berkshire Hathaway's portfolio to own numerous businesses with strong brands, including the beverage giant.
Thanks to consistent product quality, global distribution, and effective marketing, Coca-Cola's brand dominates the market. And it drives pricing power. The business isn't selling markedly higher unit volumes over time. However, it can charge higher prices that don't curb demand.
This leads to tremendous profits. Coca-Cola reported a stellar net profit margin of 30% in Q3 (ended Sept. 26). Capital requirements to reinvest in the business are low, so management can pay dividends that total $0.51 per share each quarter. If the trend continues, 2026 will be the 64th straight year that the board of directors approves a dividend payout hike, which is an unbelievable track record.
NYSE: KO
Key Data Points
Coca-Cola stock probably won't outperform the market
In the past three years, Coca-Cola has produced a total return of 31% (as of Jan. 21). The S&P 500 has put up a total return more than double that, at 79%. This is a small sample of what investors can expect. In other words, Coca-Cola won't be a market outperformer.
While I expect the stock to lag the benchmark over the next three years, Coca-Cola makes sense for dividend investors who want to quench their thirst for income.
