When you’re trying to build generational wealth, it’s not about getting rich quick. It’s all about creating a portfolio of businesses that are built to last. At that point, you need to hold on to old favorites Coca Cola (NYSE: KO) and relatively young Chipotle Mexican Grill (NYSE: CMG) on your wish list, while Hormel food (NYSE: HRL) worth adding to your portfolio now. Here’s a quick look at each stock.
1. Coca-Cola is a giant
With a market cap of around $270 billion, Coca-Cola is one of the largest consumer products companies in the world. Don’t underestimate the advantage this has for the company and for investors. For starters, Coca-Cola’s business is backed by a roster of iconic brands, most notably its namesake Coke. Additionally, the company has a global distribution network and the financial firepower to back its brands with advertising. And it’s big enough to buy its way into new products and categories over time.
The consumer goods industry is a sector where both retailers and end consumers are seen as customers for companies like Coca-Cola. The advantages that Coca-Cola generates from its size work to attract consumers to stores, and in turn, get stores to purchase Coca-Cola products for sale. Smaller competitors that can’t match up often don’t get the same shelf space, effectively cementing Coca-Cola’s already dominant position. But if the smaller competitors come up with something new, well, they and their brand new product could easily become part of Coca-Cola. Here are the many reasons why Coca-Cola is a Dividend King, with over 60 years of annual dividend increases under its belt. The dividend yield today is around 3%, well above the 1.3% that the S&P 500 index.
2. Chipotle Mexican Grill is established, but still growing
Compared to a company like McDonald’sChipotle Mexican Grill is still a kid. But it has clearly established itself as a dominant force in the restaurant industry. In fact, the company’s freshly made assembly line format has been copied many times, including by the recent market darling Cava. Chipotle has done so well for so long that its stock price has soared to unprecedented heights, prompting a massive 50-to-1 stock split to bring the price back down to where mere mortals could afford to buy a share. The best news? Despite Chipotle’s already impressive growth, it’s still showing impressive signs of strength.
For example, in the first quarter of 2024, the company’s total revenue rose a whopping 14% year-over-year to $2.7 billion. For reference, McDonald’s revenue in the first quarter was nearly $6.2 billion, so there’s still plenty of room for growth at Chipotle. But the really interesting number was Chipotle’s same-store sales, which came in at 7%. Half of that number would be considered good, considering McDonald’s only managed 1.9% in the quarter. What this tells you is that Chipotle is still benefiting from strong demand, which should allow it to continue opening new restaurants for the foreseeable future. Chipotle is focused on investing for growth, so it doesn’t pay a dividend. But if you don’t mind that fact, it seems like the kind of stock you could pass down to the next generation for safekeeping. That said, the stock is always expensive, so waiting for a market decline could lead to a better entry point.
3. Hormel’s dividend yield is historically high
Like Coca-Cola, Hormel Foods is a Dividend King. It has increased its dividend annually for 58 consecutive years. It is not as large as Coca-Cola, but it does have a stable of leading brands, such as Spam and Planters, among many others. It is also very innovative, releasing “new” and “improved” products on a regular basis. The words “new” and “improved” have a special power with consumers, which is one of the reasons retailers like to work with Hormel. So why is the stock yielding near its all-time high of 3.7%?
The quick answer is a perfect storm. Hormel couldn’t pass on price increases to consumers as well as its competitors, margins were squeezed by inflation, bird flu has been pretty bad lately, sales in China have been slow to recover from COVID lockdowns, and the company acquired the Planters brand just as the snack nut category was slowing down. Any one of those issues on its own wouldn’t be that big of a deal. All five of them together have investors worried that Hormel’s best days are behind it. But given the company’s long and successful history, it seems fair to give management the benefit of the doubt. And you get paid well to wait for Hormel to muddle through to better times.
One to buy, one to consider and one to keep an eye on
Given the negative sentiment around Hormel today, it seems like an attractive long-term buying opportunity. Coca-Cola isn’t exactly cheap, but it’s not exactly expensive either. If you’re looking to create a reliable revenue stream, you might want to take a closer look. Chipotle has the best growth prospects of the three, but investors are pricing in a lot of good news. If there’s a bear market and investors are throwing the baby out with the bathwater, as is usually the case, you might want to get in.
Should You Invest $1,000 in Coca-Cola Now?
Before you buy Coca-Cola stock, you should consider the following:
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Reuben Gregg Brewer has positions in Hormel Foods. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group. The Motley Fool has a disclosure policy.
3 Stocks That Can Create Lasting Generational Wealth was originally published by The Motley Fool
