Coca-Cola (NYSE: KO) is one of the largest consumer staples companies in the world. It has the scale, marketing power, distribution might, and innovation chops to compete with any peer. It is also a Dividend King — a group of companies that have raised dividends for 50+ consecutive years — showing that it has a consistent business and places a high value on returning value to investors. There’s just one issue that investors need to worry about — buying the stock at a reasonable price.
Coca-Cola is an attractive business, but it isn’t always an attractive stock. That’s largely because the business’ many strengths are so widely recognized. But there are some unique headwinds right now that have investors worried. Most notably there’s a shift toward more health consciousness among consumers that has Wall Street concerned that demand for Coca-Cola’s many sweet beverages is going to be a problem.
That’s not unreasonable, noting that organic growth of 5% in the second quarter was down from 6% in the first quarter. But the truth is that 5% organic growth isn’t bad and was well above the 2.1% growth of peer PepsiCo in the second quarter. All in all, Coca-Cola is doing just fine as a business and, if history is any guide, the Dividend King will adjust as needed to best serve consumers.
This is where a recent stock price pullback comes in, because the drop has left key valuation metrics price-to-sales and price-to-earnings below their five-year averages. Is the stock dirt cheap? No, but if you are a long-term dividend investor, the shares are attractively valued, which is one very good reason to jump aboard this iconic soda maker and its 3% dividend yield.
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