Coca-Cola Co (NYSE: KO) posted an all-time high recently of about $67.20 on Monday and has settled to around $66 today. This company started Q1 2022 with an impressive result that beat both revenue and earnings expectations. Since January, it has recorded more than 20% gains. Coca-Cola stock is usually a slow mover, which is quite an improvement. We see a trend where investors move away from growth stocks into safe havens that can withstand the heat of inflation. Coca-Cola is one such.
During the pandemic, Coca-Cola had a revenue shock due to low demand due to empty stadiums, theme parks, and movie theaters where beverage consumption is high. But recently, events show that the company is clearing the barrier posed by the pandemic. Pepsico Inc (NASDAQ: PEP), a staunch rival, has already done that in 2021.
After following the company’s performance for years, here are some drivers that make the stock worth considering.
1 - Coca-Cola has slow but steady growth
Coca-Cola (NYSE: KO) ranks as the most dominant beverage company globally, and that is no small feat. It has captured 14% of the global commercial beverage sales in developed countries and lays claim to 6% in emerging economies. This figure is remarkable considering that the beverage sector is a vast one consisting of water, soda, tea, and juice.
The turbulence created by the pandemic made the company's fortunes contract, but it is slowly picking up. Management believes that revenue growth will stand at 4% to 6% this year. This is heartwarming, but we think the company is past its best years. The focus now is on whether management can deliver this projected growth for the $265 billion market cap company.
2 - Coca Cola Has A Legendary Dividend Payment History
Investors flock to Coca-Cola because it has a good record with dividends. Its dividend payments have been increasing every year for decades. It has consistently been paying dividends for 60 years and has become the King of dividend stocks.
Investors are expected to receive a dividend of 3% at today's prices. But many chose to reinvest it into the company, although they have the option of cashing it. As a result, compounded investments are turbocharged by the company's dividend payments. In recent years where the dividend increase has been notable, the dividend payout ratio has dropped. A promising sign for investors. Dividend payouts are now at 64% of cash flow, which signifies more payments are available for the future while the company can still retain flexibility in its cash flow.
Recently, management announced that there would be a stock buyback this year.
3 - The company Is Recording Improving Financials
Once a bottling giant, the company has left that area and is currently concentrating on selling drink concentrates. Drink concentrates are cheaper to produce. Therefore, more revenue is available for free cash flow than in previous years. Now, it spends only $0.29 on every sales dollar in production.
The company's free cash flow keeps increasing yearly. It is now about $11.2 billion. This has improved its financials and shows the management is on its toes. This also gives management more flexibility. Therefore, investors are comfortable that they will continue to receive dividends in the future like in previous years.
Is The Stock A Buy Right Now?
Warren Buffett bought Coca-Cola in the late 1980s, and he has never sold a share since then. It is one of his famous buys. Coca-Cola has been an old-time favorite for investors who love stock dividends. But in terms of performance, despite its legendary history, it has been underperforming the S&P 500. It is roughly 70% of the index.
The company has gone through changes, especially during the turbulent years of the pandemic. But we see the company improving due to its flexible free cash flow. The price earning ratio is right now 25, but traditionally, it has been 26. The outlook for Coca-cola in 2022 may not be all that rosy. For one. it has seized operations in Russia which is expected to have at least a 1-2 % impact on its unit case volumes.
Apart from that, we could say history is on the side of Coca-Cola. We see modest growth in the stock over the long term, and hope management succeeds in their earnings per share projections. So, you should buy Coca-Cola if you want a steady stock for the long term.
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