Insights

Coca-Cola Stock Looks Unstoppable

In a challenging environment, when many other companies are lowering or even pulling their full-year guidance due to inflation and recession fears, Coca-Cola (NYSE: KO) is sticking with its guidance of 5%-6% comparable earnings-per-share (EPS) growth. In terms of revenue, Coca-Cola is putting its foot on the gas, now guiding to impressive 12%-13% organic revenue growth — a big jump from the 7%-8% it guided to last quarter.

Image source: Getty Images.

Defense wins championships

In the past, I’ve sometimes been wary of Coca-Cola’s high multiple. However, its continued fundamental performance and the strong showing by its stock over the past year demonstrate why it is deserving of a premium multiple. At a time when many companies are missing estimates and showing declines from last year’s results, Coca-Cola beat estimates and grew EPS by 4% and organic revenue by 16% year over year.

Though the Dow Jones Industrial Average and S&P 500 are down 11.5% and 15.6%, respectively, year to date, Coca-Cola is up 6%. Zooming out, Coca-Cola is up 10% over the past year, while the Dow and S&P 500 are down 7.6% and 8%, respectively. Keep in mind that the NASDAQ has posted worse returns than the other two major averages during this time frame, further highlighting Coca-Cola’s strong performance. Capital preservation is an important part of investing. With Coca-Cola, you are getting not only capital preservation in a down market but also some solid gains, as we’ve seen in 2022.

Dividend King

In addition to this stalwart defense, Coca-Cola pays shareholders a solid dividend. At the share’s current price, the dividend yields 2.8%, surpassing the market average. 

When looking for dividend stocks to add to my portfolio, I often look for stocks with higher yields than this. Still, if you are a Coca-Cola shareholder, you’re not complaining — the yield has gone down, thanks to the stock’s outperformance over the past year, which is a good problem to have. Investors also can look forward to the dividend payout continuing to grow over time — Coca-Cola is a Dividend King that has grown its payout for an incredible 60 years and counting, with no signs of stopping anytime soon.

Ranch water

The 130-year-old company is more innovative than meets the eye at first glance and has continued to grow by iterating on its existing product base. For example, the company has linked up with some of the standard bearers of the alcoholic beverage industry, like Brown & Forman (NYSE: BF.A) (NYSE: BF.B) and Molson Coors (NYSE: TAP) (NYSE: TAP.A), to release ready-to-drink (RTD) versions of classic cocktails.

For one, Coca-Cola is collaborating with Brown-Forman to create an RTD version of the popular Jack and Coke, which has been a bar staple for decades. The drink will launch in Mexico in late 2022 and, eventually, in additional markets worldwide.

Similarly, Coca-Cola teamed up with Molson Coors to blend Topo Chico Hard Seltzer — a tequila-infused hard seltzer version of its popular Topo Chico mineral water — with Ranch Water, which has been a popular drink in Texas and the American Southwest for years. Coca-Cola and Molson Coors successfully launched Topo Chico Hard Seltzer last year, so this new release should continue the positive momentum. These innovations have helped Coca-Cola keep its product portfolio fresh and grow sales.

CEO

Another reason to feel good about buying and holding the stock for the long term is the captain of the ship, CEO James Quincy. Since Quincy took over, he has raised the dividend every year (like his predecessors); trimmed some underperforming brands, like Zico coconut water and Tab, from Coca-Cola’s portfolio; and overseen the successful acquisition of Topo Chico and the new RTD product launches.

Overall, Quincy has made the tough decision to cut over 200 brands, helping streamline Coca-Cola’s offerings and showing he isn’t afraid to make those difficult decisions. With Quincy in the driver’s seat, Coca-Cola looks to be in good hands for years to come.

Conclusion

Coca-Cola’s stellar performance this year, despite a challenging economic environment and difficult stock market, shows it is a stock that investors can confidently add to their portfolios for the long term. The company will help preserve capital in times of trouble, pay a growing dividend, and continue to innovate on its product portfolio in new and exciting ways over time.

Michael Byrne has no position in any of the stocks mentioned. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.

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