The S&P500 has done well lately. Over the past year, the index has risen approximately 25%.
But certain stocks have lagged behind. During this period Coca-Cola‘S (NYSE: KO) The share price lost 7%.
A stock underperforming the market does not necessarily translate into a buying opportunity. After all, the stock market has proven to be quite efficient. But in this case, dividend-seeking investors should use this moment to buy Coca-Cola stock.
It’s time to discover why you should invest your hard-earned money.
Popular products
Coca-Cola has become more than a soft drink company. It sells a range of popular drinks, such as water, sports drinks and juice. Brand names include Coca-Cola, Sprite, Dasani and Minute Maid.
While the majority of last year’s unit volume, 69%, came from soft drinks, about a third still comes from other beverages. Given Coca-Cola’s size and brand awareness, Coca-Cola dominates most competitors. The main competition comes from PepsiCowhich also sells snacks and convenience foods.
Despite Coca-Cola, sales and profitability continue to grow. The company’s adjusted revenue, excluding currency translations and acquired/divested businesses, increased 12%. Higher prices accounted for the majority, but volume contributed 3 percentage points. Management expects revenue growth of 6% to 7% this year. The sales growth resulted in a 20% increase in the adjusted operating result.
Rising dividends
Coca-Cola’s higher profitability translates into free cash flow (FCF). Last year it generated $9.7 billion in free cash flow.
The company uses this miraculous FCF to reward shareholders. While Coca-Cola’s business may not excite investors as much as a fast-growing company, it does something that many of these companies don’t do at this stage of their development. Coca-Cola is paying investors increasingly higher dividends.
A few months ago, the board of directors announced a 5.4% increase in dividends. I see that as a positive sign about management’s prospects. This also marked 62 consecutive years of a dividend increase. That makes Coca-Cola a dividend king. This elite group consists of companies that have increased payments for at least 50 years in a row.
Coca-Cola shares have a dividend yield of 3.3%. That’s more than double the S&P 500’s 1.4%.
Stock valuation
The share price has recovered somewhat since early October. But that shouldn’t stop income investors from getting involved.
The stock is selling at a price-to-earnings ratio of about 24. A year ago, the price-to-earnings ratio was about 28. By comparison, the S&P 500 has a price-to-earnings ratio of 28.
It’s an impressive feat when a company not only pays stable dividends, but also increases them year after year. Coca-Cola has been doing this for more than sixty years, in good times and bad. That included severe recessions, hyperinflation, stagflation and the pandemic, to name a few. And it looks like Coca-Cola’s steady profit growth won’t stop anytime soon.
With a stable business, popular products, strong cash flow and a relatively attractive valuation, Coca-Cola seems like an attractive investment option. Then you can enjoy your dividend payment for years to come.
Should You Invest $1,000 in Coca-Cola Now?
Before you buy Coca-Cola stock, consider the following:
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
1 Beautiful S&P 500 Dividend Stock Dropped 7% to Buy and Hold Forever originally published by The Motley Fool
