Could Buying Coca-Cola Stock Today Set You Up for Life?
Buying a stock you can hold indefinitely isn't some impossible dream, but it's a high bar that few companies genuinely clear. The world is constantly changing, so most companies must adapt over time to stay relevant. However, Coca-Cola (NYSE: KO) stands out for its timeless business model.
A stock doesn't have to take investors from rags to riches overnight to set them up financially for the rest of their lives. In investing, consistency is most important, and Coca-Cola does that better than most.
Here are three reasons why any investor trying to build life-long wealth should consider adding Coca-Cola to their portfolio.
1. The company is positioned for a lifetime of growth
Coca-Cola is among the world's most recognizable brands, so a long introduction probably isn't needed. Beyond its namesake brand, Coca-Cola's beverage empire spans hundreds of products, including sodas, water, tea, juice, coffee, sports drinks, and more. The company has been around since the late 1800s, and it is one of the few companies that I'd feel comfortable assuming will be here another century from now.
Why? People worldwide consume ready-to-drink beverages, and Coca-Cola owns the best distribution network. It sells its products worldwide in stores, vending machines, restaurants, bars, airplanes, sporting venues, and more. Coca-Cola won't blow you away with rapid growth, but it has an almost unstoppable ability to continue growing.
It can grow its sales over time in many ways, including:
Selling more drinks via marketing and population growth.
Developing or acquiring new brands and products.
Raising its prices.
Expanding into new product categories, such as alcoholic beverages.
Even as a behemoth worth over $300 billion with $46 billion in annual sales, Coca-Cola's expansion opportunities still seem endless today. Approximately 80% of the world's population lives in developing or emerging markets, and most don't yet drink commercial beverages. Of the 20% of people living in developed countries, just 30% consume at least one Coca-Cola product weekly.
2. A dividend fit for a king
Coca-Cola is a mature and profitable business that has shared its profits with investors for generations. Coca-Cola is a Dividend King, part of a prestigious club of companies with at least 50 consecutive years of dividend increases. Today, the stock yields 2.7% at its current share price.
Don't underestimate the power of consistent dividend increases over time. You can see below that dividends have contributed more than half of Coca-Cola's investment returns:
Coca-Cola's dividend is 68% of its estimated 2024 earnings, and analysts expect mid-single-digit long-term earnings growth. That should translate to slow and steady annual dividend increases without jeopardizing the company's financial health -- more of what Coca-Cola has been doing for decades.
3. Be the tortoise, not the hare, with Coca-Cola stock
Investors need to actually hold the stock to enjoy the fruits of long-term compounding. However, this is sometimes easier said than done. Coca-Cola's docile nature makes the stock easy for investors to hold. It has a beta of 0.6, meaning it doesn't respond to volatility as much as the broader market does.
Sometimes, investors think setting themselves up for life means trying to get rich quickly. They seek out these high-risk stocks that can explode for massive investment gains in short order. But these stocks can plunge, losing their value just as quickly. Volatility stokes fear and greed in many people, and those are often the underlying causes of most investing mistakes people make in their lifetimes. It's why people buy high and sell low.
Think of Coca-Cola as the tortoise, not the hare. It's not flashy, but Coca-Cola can grow and pay ever-increasing dividends. Buy Coca-Cola stock routinely, hold it indefinitely, and you'll be well on the path to a lifetime of building wealth.
Should you invest $1,000 in Coca-Cola right now?
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Could Buying Coca-Cola Stock Today Set You Up for Life? was originally published by The Motley Fool