Coca-Cola stock rises to a new high. Here’s why I’m doubling down.

It’s been a tough last few weeks for investors. Although stocks are up from last week’s lows, S&P 500 it is still quite low from the peak in July. It’s also possible that the market will hit a lower low before it’s all said and done.

However, not every ticker is on the defensive. A handful of stocks are at or near record highs because investors understand that these few names offer something that most other stocks don’t right now — relative safety — and so people are signing up for such companies only if which recent market weakness is a foreshadowing.

Coca cola (NYSE: KO) is one of those names. And I’m buying more of it, despite the recent debate. Here’s why you might want to do the same.

Coca-Cola is the symbol of resilience

Coca-Cola is the most famous beverage producer in the world. In addition to its namesake soft drink, it owns brands such as Minute Maid juice, Gold Peak tea, Dasani water and Powerade sports drink to name a few.

But it’s not quite the company you might think it is. Although it used to do much of its own bottling, it has increasingly delegated this to third-party bottlers who buy flavored syrups from Coca-Cola itself. While this ultimately means less revenue, it also means higher margin revenue. Most importantly, this change has freed the company to focus on what it does best. That’s marketing.

But why are stocks rising to record highs when most others are on the defensive? And more than that, can this upward trend last?

The answer to the first question: We may be entering a period of economic lethargy that actually works in the company’s favor.

The nation’s unemployment rate is starting to inch higher, and globally the International Monetary Fund is cutting its short-term growth expectations.

However, consumers are unlikely to give up their favorite drinks just because money may be getting tighter. In fact, it is debatable that people will opt to enjoy these simpler and cheaper treats More than they normally could if they stop spending on bigger ticket purchases. (For perspective, despite the 2008 subprime mortgage crisis and subsequent recession, Coca-Cola enjoyed an 11% improvement in revenue with a 5% increase in volume.)

As for the second question, yes, there is room and reason to expect more upside from this stock, even if we see a little profit-taking here. It’s still slightly below analysts’ average price target of $70.73. Most of these analysts still rate it as a strong buy.

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That’s not the main reason I’m doubling down on Coke right now, though.

A good time to become income minded

There’s never a bad time to own Coca-Cola. It’s a brand that consumers know and love, and management clearly knows the beverage business as well. If nothing else, it’s not likely to do any harm to your portfolio in the long run.

My interest now is much more specific, though. In anticipation of the aforementioned economic headwind, I am looking to increase my exposure to dividend-paying stocks. There may be nothing better than Coca-Cola stock.

The 2.8% forward dividend yield isn’t exactly a show; you can find higher returns at other holdings. However, you won’t find a higher yielding choice that is as reliable or with a comparable risk profile. The stock’s beta, which measures volatility, is as low as 0.59 (the lower this number, the lower the volatility).

Consumers’ brand loyalty, even when times get tough, means they’ll keep buying Coke, Minute Maid, Gold Peak, etc., and the company will continue to turn about a quarter of its revenue into a net profit. In turn, it will continue to earn more than enough to fully fund its future dividends. Of the $2.79 per share Coke earned over the past four quarters, only $1.91 was eaten up by dividend payments. This is a comfortable margin.

The kicker: Coca-Cola is not only a consistent dividend producer, but has increased its annual dividend for 62 consecutive years. Not likely to let that streak end now.

You should also know that I will not necessarily reinvest these dividends into more Coca-Cola stock. Instead, I could build up a larger cash reserve so that I can go shopping in the event of a more serious withdrawal.

Seal the deal

Am I preparing too much for an economy that may never materialize? Possibly. But I’d rather play pointless defense with a quality company like Coca-Cola than stick with things that are too aggressive and end up regretting it. After all, risk management is an important part of becoming a successful investor.

There’s also the simpler bullish argument that Coca-Cola is a quality holding regardless of past or future background. It has a long-term record of revenue and earnings growth that reflects its dividend history.

So I’d say don’t overthink this one and don’t sweat your recent extreme bullishness on stocks. Big stocks have a funny way of posting gains that don’t seem possible at the time.

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James Brumley has positions in Coca-Cola. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Coca-Cola stock rises to a new high. Here’s why I’m doubling down. was originally published by The Motley Fool