Coca-Cola (KO.US) is one of the major "blue-chip" stocks. You'd be hard-pressed to find another product of any type to match the brand of its flagship soda, and the company has seen it pay off over the years.
Its stock is down about 4% this year, in part because of investors flocking toward technology and growth stocks, which are up significantly in 2023. Despite the stock's underperformance this year, Coca-Cola is positioned to be a great long-term investment.
Together with inflation, sales also grew
In the second quarter, Coca-Cola achieved sales of $12 billion, a 6% year-over-year increase. Its earnings per share grew at a faster pace, rising 11% year-over-year to $3.11 billion. Considering the economy, the growth is impressive. With net income growth outpacing revenue growth, it's a sign that the beverage giant is operating more efficiently, despite its operating margins declining year-over-year.
A big part of why a company's finances are doing well despite the economy is its pricing power. When inflation reaches high levels, some companies have to incur higher costs to keep their prices consistent and remain competitive. Other companies can pass the higher costs on to consumers without worrying that they will switch to a different product. Fortunately, Coca-Cola belongs to the latter group.
There are still opportunities for growth
Despite distribution in more than 200 countries, Coca-Cola still has plenty of opportunity for growth as new categories enter the market and consumer preferences change accordingly. The company's total addressable market (TAM) was approximately $650 billion in 2017; by 2022, its TAM jumped to approximately $1.3 trillion. Management plans to reinvest approximately $1.9 billion of its cash back into the business in 2023 to focus on expansion.
In addition to share growth and a solid dividend
The level of security is important for investors. In most cases, it is the difference between the intrinsic value of a stock and its trading price. In other cases, it is a guaranteed, above-average dividend. Coca-Cola's quarterly dividend is $0.46 with a yield over the past 12 months of around 3%. That's almost double the current yield of the S&P 500 .
Not only does Coca-Cola pay an above-average dividend, but it has also increased its payout for 61 consecutive years, making it the Dividend King. This isn't likely to change either. In 2022, the company paid out $7.6 billion in dividends.
