Given how familiar investors might be with their products and services, it makes sense that consumer-facing businesses, as opposed to those that serve enterprise customers, are of interest. There might be worthwhile investment opportunities in this part of the stock market to consider. And these companies could be easier to understand.
Coca-Cola (KO 0.03%) is one of the most popular names that falls into this category. Could buying this beverage stock today set you up for life?
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Coca-Cola's brand supports its ongoing success
It's clear why Coca-Cola has long been a top Warren Buffett holding. This business possesses one of the world's most valuable brands. Its products are loved across the globe. It has an endless list of offerings that can satisfy anyone's taste preferences. Broad distribution adds to visibility. And Coca-Cola has always had top-notch marketing expertise to resonate with consumers.
The brand has stood the test of time. And this should give investors confidence that Coca-Cola will still dominate the beverage industry decades into the future.
From a financial perspective, the brand helps Coca-Cola consistently raise prices. This supports durable growth, even though unit volumes don't increase by that much.
What's more, the brand's strength flows to the income statement, helping to drive incredible profits. Coca-Cola's quarterly gross margin and quarterly operating margin averaged 61% and 27%, respectively, in the past 10 years.
Investors benefit from the earnings stream because management returns lots of capital to shareholders. Coca-Cola's board of directors approved a $0.51 per share quarterly payout last February, marking the 63rd straight year that a dividend hike was implemented. Income investors will certainly appreciate this.
NYSE: KO
Key Data Points
Look at the past to understand what the future will bring
A powerful brand, impressive profits, and staying power are factors that make it easy to argue that Coca-Cola is a high-quality company. That's not a controversial perspective to have.
But if you're looking at this stock as a ticket to generational wealth, it's probably smart to really temper your expectations. In the past decade, Coca-Cola shares generated a total return of 139% (as of Jan. 30). That comes up well short of the 325% total return of the S&P 500 index.
Past performance doesn't indicate future returns. However, investors shouldn't expect this stock to register huge gains in the years and decades ahead.
Growth is the variable to think about here. Coca-Cola is an extremely mature business. Its products are already available everywhere, as the company has a presence in over 200 countries and territories. Unsurprisingly, there isn't much room to expand.
This is a safe stock, to be fair. But if you buy Coca-Cola today, it's not going to set you up for life.
