Grasping Three Immediate Motivations to Invest in Coca-Cola Shares
In the first two months of 2025, the S&P 500 is maintaining its gains from last year, but it hasn't seen significant growth yet, only climbing 4%. Despite this, companies like Coca-Cola are performing well. After dealing with inflation and increased costs, Coca-Cola (KO -0.04%) showcased impressive results in the 2024 fourth quarter. Here are three reasons why you should consider investing in this legendary beverage company:
1. Pricing Power
As the largest beverage company globally, Coca-Cola has a massive following in 200 countries. Its iconic brand is recognized worldwide, and people are willing to pay a premium for it. This ability to charge high prices is called pricing power.
Coca-Cola has been navigating the challenges of inflation by balancing absorbing and passing on higher costs. They've experimented with various strategies, such as smaller packages and returnable glass bottles, to keep costs down while maintaining their premium image.
In the fourth quarter, revenue increased 6% year over year, with unit case volume also increasing 2%. The fascinating part is that organic revenue, which excludes external factors like acquisitions and foreign exchange, grew by 14% in the quarter and 12% for the whole year. Price/mix, which tracks revenue growth resulting from pricing and mix, increased by 9% in the quarter, with 8 percentage points coming from pricing actions. While management expects these pricing trends to continue in 2025, they also anticipate moderation as inflation subsides.
2. Profitability
With more than a century of experience, Coca-Cola has mastered the formula of turning sales into profits. They've achieved this by acquiring established brands and leveraging their distribution system to sell these brands more efficiently.
Coca-Cola's pricing power becomes particularly important during inflationary periods, enabling them to cover rising costs while still making a profit. Consequently, earnings per share (EPS) increased by 12% to $0.51 in the fourth quarter, and for the entire year, they slightly declined to $2.46.
Furthermore, in the fourth quarter, Coca-Cola generated $10.8 billion in free cash flow, enabling them to support their renowned dividend and keep investors satisfied.
3. The Divine Dividend
Coca-Cola is not just known for its pop; it's also famous for its impressive dividend. With a track record of paying and increasing its dividend annually for 62 years, Coca-Cola is one of only nine 'Dividend Kings.' Although the dividend yield isn't exceptionally high, the reliability of this payout makes it an attractive choice for investors.
Currently, Coca-Cola's dividend averages around 3%, offering a 2.8% yield at its current share price, primarily due to the stock surging 11% this year. Despite this growth, Coca-Cola's yield is still more than double the S&P 500 average.
While Coca-Cola may not be a growth stock, it remains an excellent choice for a safe stock or a dividend stock to include in a well-diversified portfolio. Its robust performance in 2024 further solidifies its long-term investment potential as a reliable company for investors to hold forever.
In the context of financial planning for 2025, some analysts suggest that considering investments in companies with strong pricing power, like Coca-Cola, could be a wise trend. With its iconic brand and global reach, Coca-Cola has demonstrated the ability to maintain high valuations even amidst inflation, as shown by its impressive financial performance in 2024.
In terms of money management, investors might find interest in Coca-Cola's strategy of balancing cost absorption and price increases, thereby mitigating the impact of inflation on its margins. This approach, combined with its focus on profitability and dividend payments, has made Coca-Cola a successful choice for many investors over the past decades.
In the drive to diversify investment portfolios, incorporating a stock like Coca-Cola can provide stability and income through its consistent dividend payments. Beverages, as a category, have shown resilience in various market trends, making Coca-Cola an attractive option for those looking to incorporate a non-technology or financial sector stock into their investment strategy.
Looking ahead to the future, some forecasters have suggested that the 'cola' industry could maintain its relevance as a trend in consumer preferences after 2025. With an ever-changing market, the ability to adapt to new trends while maintaining a loyal customer base could give companies like Coca-Cola a competitive edge. Just as Coca-Cola has weathered multiple economic shifts over its century-long history, investors might find comfort in the potential for long-term returns from this enduring sector.
