Coca-Cola Stock: Buy, Sell, or Hold?

Coca-Cola (NYSE: KO) is one of the most iconic and long-standing companies in the public market. As such, it can be easy to forget about the $275 billion beverage giant.

Today, Coca-Cola stock is roughly 4% off its all-time high, so it's worth checking in on the Warren Buffett -favorite. Let's examine Coca-Cola's recent financials, dividend history, and what the future holds to determine if it's worth buying, selling, or holding.

Coca-Cola's not-so-secret formula

Everyone knows Coca-Cola by its flagship product, but the company has been investing heavily in diversifying its offerings as some consumers shift away from sugary sodas. Over the past decade, notable acquisitions include the sparkling water brand Topo Chico for $220 million, the coffee company Costa for $4.9 billion, and the sports and hydration beverage company BodyArmor for $5.6 billion.

Due to these acquisitions, the company has successfully stabilized its net sales , which plummeted from a peak of $48 billion in 2012 to a low of $33 billion in 2020. In 2023, Coca-Cola generated nearly $46 billion in revenue.

KO Revenue (Annual) data by YCharts

More recently, Coca-Cola delivered $11.4 billion in net sales in the first quarter of 2024, representing a 3% year-over-year increase. The company turned its net sales into $528 million cash flow from operations, equating to a 43.5% year-over-year increase.

For the full year 2024, management projects organic revenue growth of 8% to 9% compared to 2024, which excludes or adjusts for the impact of acquisitions, divestitures, and structural changes. Management also guided for $11.4 billion in cash flow from operations, a slight decrease from $11.6 billion in 2023.

Coca-Cola prioritizes dividends

Companies have two primary methods of returning capital to shareholders: dividends and share repurchases. For Coca-Cola, management's priority is to pay and raise its dividend each year. The stock is in the exclusive Dividend Kings club, having paid and increased its dividend for at least 50 consecutive years.

Now in its 62nd year of consecutive dividend raises, Coca-Cola pays a quarterly dividend of $0.485 per share, which shakes out to an annual yield of 3%. Considering the S&P 500 yields approximately 1.3%, the beverage giant is a favorite stock for income seekers.

To illustrate the power of Coca-Cola's dividends for long-term investors, consider Berkshire Hathaway 's investment in the company. Berkshire's total investment reached $1.3 billion in 1994 and received $75 million in dividends. Without purchasing any additional shares or reinvesting dividends, Berkshire is expected to receive $776 million in 2024. In Warren Buffett's 2022 annual shareholder letter, he wrote: "Growth occurred every year, just as certain as birthdays. ... We expect that those checks are highly likely to grow."

What could go wrong for Coca-Cola?

While Coca-Cola's consistently growing dividend is one of its selling points, it's also a potential risk. For any dividend stock, it's essential to measure its earnings and compare it to its dividends paid out to determine whether it can continue to afford to distribute dividends to shareholders. In Coca-Cola's case, the company is expected to pay out approximately $8.4 billion in dividends for 2024 while generating a projected $9.2 billion in free cash flow .

The resulting cash outlays don't leave much left over for the company to pay down its $25.6 billion in net debt , for which it spends more than $550 million annually to service. While the dividend isn't in jeopardy of being suspended or cut, management will likely feel obligated to raise it annually. If sales of its flagship sugary sodas continue to falter, it could potentially put further pressure on its balance sheet, which could in turn hamper future growth acquisitions.

Speaking of acquisitions, Coca-Cola had to write down $760 million of its $4.9 billion BodyArmor acquisition in the most recent quarter. During the latest earnings call, CEO James Quincy acknowledged, "Clearly, we haven't progressed as fast as we would like with regard to BodyArmor."

Finally, Coca-Cola finds itself in an ongoing litigation with the Internal Revenue Service (IRS), which alleges that the company owes $3.4 billion in unpaid taxes for the years 2007 to 2009. The IRS claims that Coca-Cola improperly limited its royalty income within the United States during this period.

Is Coca-Cola stock a buy, hold, or sell?

Coca-Cola trades at 27.6 times free cash flow , aligning with its five-year median. So, arguably, the stock is neither cheap nor expensive despite its near-all-time highs.

For investors seeking stability and income, Coca-Cola remains an attractive option, and they should continue to hold the stock. However, investors should continually monitor the company's challenges, including shifting consumer preferences and revenue growth, to ensure it can sustain its increasing dividend.

Collin Brantmeyer has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy .