Since the first of January, Coca-Cola (KO +0.61%) has surged by around 26%. Not only does this represent outperformance compared to the S&P 500, which is up by around 13.6% year to date, but shares in this venerable consumer staples stock have also outperformed Broadcom and all "Magnificent Seven" stocks.
In terms of price appreciation, the only one that comes close is Nvidia, which is up 23.5% year to date. Apple and Amazon are up by double digits, but Broadcom and Microsoft are up by just single-digits, with Alphabet and Meta Platforms each declining by around 6.5% since January. Tesla, the worst performer, is down over 21% this year.
Yet while it's been an amazing turn of events for investors in blue chip dividend stocks, the question now is whether it's wiser to let it ride on Coca-Cola, or to take profit. While there's substance behind its strong 2026 price performance, the stock may have surged too far, too fast.
Image source: Getty Images.
Two reasons why Coca-Cola has outperformed big tech
Assessing the current market backdrop, it makes sense that 2026 has become a banner year for Coca-Cola shares, but not for the Magnificent Seven. For one, a key reason behind big tech's underperformance has been growing concerns about the sector's artificial intelligence (AI) build-out. The Magnificent Seven, along with other major tech companies, are spending hundreds of billions of dollars to build out their AI infrastructure.
At the same time, there are growing doubts about whether this heavy capital investment will yield a worthwhile return. Although these concerns have waned, this factor has served as a drag on returns for Magnificent Seven stocks in recent months.
Second, and more pertinent to the bull run for Coca-Cola, is that the stock has benefited from strong fiscal results. For instance, during the second quarter of 2026, Coca-Cola reported 7% net revenue growth and 16% adjusted earnings-per-share (EPS) growth compared to the prior year's quarter.
Compare that to the recent past, when Coca-Cola has typically reported low-single-digit sales growth and mid- to high-single-digit earnings growth. Management's guidance calls for earnings between 9% and 10% for full-year 2026. Given Wall Street's propensity to reward a "growth story," it's not surprising that Coca-Cola shares have soared, and the stock now trades at a much higher forward earnings multiple than before.
NYSE: KO
Key Data Points
Even as the story continues, wait for better prices
Following Coca-Cola's big run-up, the stock now trades for around 25 times forward earnings. Comparatively, Coca-Cola has traded at a price-to-earnings (P/E) ratio in the low 20s for much of the past decade. Coca-Cola's World Cup sponsorship has contributed heavily to its 2026 growth resurgence.
As management noted in the Q2 earnings release, the World Cup campaign played a major role in growth, including last quarter's 5% volume growth for the flagship Coca-Cola brand and 8% growth for Coca-Cola's Powerade brand. In current and previous guidance, management attributed much of the company's bottom-line growth to "currency tailwinds," or the impact of a weak U.S. dollar in boosting results from Coca-Cola's overseas operations.
If the impact of these factors begins to slow, it could spell trouble. After getting rerated higher on improved growth, a growth slowdown could lead to a de-rating, or Coca-Cola's return to a lower forward multiple. That's not to say Coca-Cola's valuation will fall to PepsiCo's, which, due to various growth and margin challenges, trades at only 15.5 times forward earnings.
Still, shares in Coca-Cola, one of the most-followed blue chip dividend stocks, could revert to their historical valuation. In light of this risk, I wouldn't buy today. However, if the pullback persists, this stock could once again fall back into the buy zone. Consider the buy zone as the price level where the Dividend King stock, currently yielding 2.4%, is back at a forward yield of 3% or higher.
This steady payout, if combined with baseline earnings growth, has the potential to provide consistent, low-volatility returns, particularly for investors in dividend stocks.
