Please ensure Javascript is enabled for purposes of website accessibility

Is Coca-Cola Stock Right for Your Portfolio?

By Motley Fool Staff - Apr 30, 2016 at 9:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The dividend yield looks good, but is that reason enough to buy the stock?

Last week, Coca-Cola (KO 1.63%) reported a decline in sales ... again. 

In this clip from the Market Foolery podcast, Chris Hill and Matt Argersinger explain what's hurting the beverage giant, which areas it might be looking to expand into, and the less-than-stellar growth it'll probably report going forward.

A transcript follows the video.

This podcast was recorded on April 20, 2016. 

Chris Hill: Coca-Cola's sales fell for the fourth straight quarter. I know, Matty, that the strong dollar hurts Coca-Cola, because about three-quarters of their business is outside of the United States. But, I'd just like to point out that sales fell for the fourth straight quarter.

Matt Argersinger: Right. (laughs) And it is, because we are talking about Coca-Cola -- speaking of predictable and modelable -- it's one of those businesses where you don't expect, really, any downside. The world's consumption of fizzy or non-fizzy beverages should continue to rise as wealth expands and emerging markets grow. But it's been tough going for Coca-Cola. It really is because people are consuming less soda. Good thing for health reasons, especially in North America. They've done really well in the still beverages -- waters, teas. It just hasn't been enough to offset what they're seeing in the soda markets. I'll say this, too, about Coca-Cola, and actually the entire consumer staples sector, really -- this was and is an expensive stock, going into this quarter. So, I'm not surprised that it's selling off a bit after these earnings. Even if you think the dollar stabilizes or weakens, which would help Coca-Cola -- maybe soda stops declining, it flattens out, and they have some wins on the still beverage side -- this isn't business I expect to grow more than the pace of global GDP. So, maybe low single digits over a long period of time. And yet, the stock is trading for about 23 times this year's earnings. That's a pretty high valuation.

Hill: That's pretty spicy for a business as mature as Coca-Cola is.

Argersinger: Right. And of course, Coca-Cola deserves a premium. I think it's a premium business with huge competitive advantages. The dividend now is over 3%, so there's some value potential in the stock, but I don't think at this price.

Hill: Yeah, for anyone who looks at Coca-Cola and thinks, "I'll buy this for the dividend portion of my portfolio," you can do that. But the stock is down about 4.5% today, which is the biggest drop in a couple of years, and has essentially wiped out the dividends of the last 12 months.

Argersinger: Right, and so this is a tough one. It's a consumer staple and a staple in many people's portfolios. At this price, I don't know what kind of total return you can expect from here.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
$60.98 (1.63%) $0.98

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.