3 reasons to buy Coca-Cola stock like there’s no tomorrow

Are you a fan of keeping things simple when it comes to investing? You should be. Less is often more. Investors who don’t fall into the trap of unnecessarily complicating things often end up with higher returns than those who do.

To that end, anyone looking for a complete new stock pick for their portfolio should consider it The Coca-Cola Company (K.O 0.74%). There are three reasons why you might want to take an oversized stake in this simplistic and predictable name.

1. Coca-Cola manages several strong brands

You know the company mostly by the namesake cola, but it’s much more than that. Coca-Cola also owns brands such as Powerade sports drink, Minute Maid juices, Costa coffee, Gold Peak tea, Dasani water and Barq’s root beer (just to name a few of its more than 200 brands). The beverage giant has something to sell to everyone, regardless of ever-changing consumer preferences, and just like the world’s most famous soda, many of these other products are also leaders in their respective categories.

However, it’s not just a wide range of top brands that makes Coca-Cola stock such a great buy. That’s how they became that way.

See, Coca-Cola is a master of the art and science of marketing. Its lifestyle branding has made its iconic name a pop culture fixture, and its size (and deeper pocket) means it’s capable of outselling any of its competitors. It may give the company an unfair advantage, but investors don’t want a fair fight. They want to own companies that can continue to dominate the competition.

2. Coca-Cola’s reliable results are thus achieved by the business model

If you want proof that Coca-Cola really is at the top of its game, you only have to look at its historical results. But the results probably weren’t achieved the way you might think.

Contrary to popular belief, Coca-Cola probably didn’t bottle and/or distribute the drink you’re enjoying that bears its name on the label. It outsources most of this work to third-party bottlers who buy flavored syrups from the Coca-Cola Company itself. This model ends up generating slightly less revenue for Coca-Cola, but ultimately translates into more reliable profits and wider profit margins. That’s because a large part of the costs and risks of production fall on the bottlers themselves.

This has been a particularly useful dynamic of late due to the rising costs of… well, all. Consumers still want their favorite drinks. It’s the bottlers who have been largely forced to figure out how to keep them affordable, up to and including accepting lower profit margins.

3. Coca-Cola’s dividend is reliable and it grows reliably too

The net result of Coca-Cola’s resilient earnings and its inflation-driven growth is an ever-growing income that supports ever-growing dividends.

As incredible as it may seem, not once since the last major divestment of its own domestic bottling operations in 2017 has this company managed to turn a quarterly profit. And that includes a challenging start to 2020, when the earliest part of the COVID-19 pandemic took a big bite out of revenue. Since then, earnings per share have rebounded above this stock’s quarterly dividend payout, and there’s every reason in the world to think things will stay that way.

KO Revenue Data (Quarterly) by YCharts

What the chart above doesn’t fully illustrate is how reliably The Coca-Cola Company is growing its earnings so that it remains in a position to improve its payouts. Since February of this year, Coca-Cola has increased its annual dividend payout for 62 consecutive years without curtailing its ability to remain competitive. You can connect to this bullish trend while the stock is yielding 2.7%.

Focus on the company, not the stock

Valuation-oriented investors might balk at Coca-Cola stock’s 25 price-to-earnings ratio or the fact that the stock is currently trading just above the analyst consensus target of $71.29. Both imply that there may not be many advantages left to take advantage of right now or for a while.

That’s not exactly how the stock market works…at least not for names like Coca-Cola. You should expect to pay a bit more for such quality, just as you can expect this stock to drive the analyst community as much as it is driven. of it.

However, since this stock is best viewed as a long-term hold, such short-term price and valuation measures don’t matter much. After all, long-term investors don’t buy stocks. They buy stakes in companies. As Warren Buffett so famously says, “It’s much better to buy a great company at the right price than a great company at a great price.” Coca-Cola is definitely a wonderful company.

Coca-Cola is also the fourth largest position currently held by Warren Buffett Berkshire Hathawayby the way. That alone speaks volumes for the quality of his prospects.