Is It Too Late to Buy Coca-Cola Stock?

The Coca-Cola Company (NYSE: KO) epitomizes the tortoise vs. the hare in investing. The stock will probably never grab your attention, but its shares have steadily grown higher and paid dividends for generations. The stock is up 8% since January, giving investors yet another year of solid returns if you factor in the dividend's 3% yield.

The company has been around long enough that it's fair to question how much longer it can deliver worthwhile investment returns. After all, Coca-Cola is the world's largest non-alcoholic beverage business today, and its stock carries a $274 billion market cap . Is it too late for long-term investors to buy the stock today?

Here is what you need to know.

The beauty of Coca-Cola's business

Coca-Cola is a beverage giant with over 200 soda, water, juice, tea, and coffee brands that it sells virtually everywhere. Its business is remarkably durable.

Selling so many different products means that sales don't depend too much on any one item or brand, and its products claim the best shelf locations anywhere it sells. Coca-Cola also doesn't need to invest much in the business, so it's highly profitable; roughly $0.21 of every dollar of revenue winds up as free cash flow .

Those hefty profits fuel a dividend that goes up each year like clockwork. Coca-Cola is a Dividend King with 62 years of consecutive dividend growth. Whatever funds are leftover from the dividend go to share repurchases to lower the share count and support earnings growth.

If you zoom out to see Coca-Cola's history, you'll see this play out. Dividends go up, share count goes down:

KO Dividend data by YCharts

To grow revenue, Coca-Cola has multiple buttons to press. For starters, everyone on Earth is a potential customer. That bakes in a continually growing market opportunity as the global population steadily increases. Additionally, Coca-Cola can raise prices, innovate with packaging sizes, and acquire up-and-coming brands. Coca-Cola doesn't necessarily grow fast, but it's remarkably consistent.

Management estimates it has just a 14% market share of the global market for hot and cold non-alcoholic drinks. Coca-Cola's brand and size give it the upper hand in bullying smaller competitors while having just 14% of the market, leaving plenty of room for slow and steady expansion.

Coca-Cola's fame works against prospective buyers

Want to buy the stock? Your biggest problem will be that Coca-Cola's fame and sterling reputation make it hard to get shares on the cheap. Coca-Cola is the textbook blue chip stock and rarely goes "on sale." Shares have traded at an average price-to-earnings ratio (P/E) of nearly 27 for the past five years. Even in 2020, when the pandemic turned the world upside down, Coca-Cola's stock didn't fall below 18 times its earnings.

KO PE Ratio data by YCharts

Remember, Coca-Cola isn't a fast-grower. Analysts expect the company to grow earnings by an average of 6% to 7% annually for the next three to five years. It's hard to justify paying almost 30 times earnings for a company with mid-single-digit earnings growth, but investors continue to make the exception for Coca-Cola.

Is it too late to buy Coca-Cola?

The market has paid a premium for Coca-Cola stock for so long that it's difficult to see that changing, barring some unforeseen catastrophe at the company. That makes it a potential buy, trading at 25 times earnings today, below its average over the past five years.

Remember that Coca-Cola's superpower isn't eye-popping growth but world-class consistency. You can buy and hold the stock forever. Patient investors will get the occasional opportunity to buy shares cheaper when something shakes the market enough to knock Coca-Cola to an uncharacteristically low price. But it doesn't happen often, so consider getting aggressive when it does.

Over time, investors should reap the rewards of steadily increasing wealth and dividend income, which seem dull but add up. So is it too late to buy Coca-Cola? Not at all.

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 .