Why Investors Love Coca-Cola Stock in 5 Simple Charts

Coca-Cola (NYSE: KO) is often considered an evergreen stock for long-term investors. It's one of the largest soda makers in the world, and it also sells a wide range of non-carbonated beverages like fruit juice, tea, bottled water, and sports drinks.

Over the past 40 years, Coca-Cola generated a whopping total return (which includes its reinvested dividends) of 13,220%. It's also been one of Warren Buffett's top holdings for Berkshire Hathaway since 1988. So today, I'll explain why investors still love Coca-Cola with five simple charts.

Image source: Getty Images.

1. Its stable organic revenue growth

You might initially think Coca-Cola's business is shrinking because its annual revenue fell from $46.85 billion in 2013 to $45.75 billion in 2023. However, that decline was caused by the divestments of some of its regional bottling operations.

So to get a clearer picture of its underlying growth, investors should track Coca-Cola's organic revenue, which excludes all the noise from its divestments and acquisitions. As the following chart illustrates, its organic revenue declined in 2020 as the pandemic shut down a lot of restaurants, but it bounced back over the following three years.

Data source: Coca-Cola. Chart by author.

Coca-Cola's robust growth in 2023 also shows that it's resistant to inflation and other macro headwinds, and it expects its organic revenue to rise another 8%-9% in 2024.

2. Its steady comparable operating margin

Coca-Cola's comparable operating margin, which also excludes its divestments and acquisitions, expanded from 27.9% in 2019 to 29.1% in 2023.

Data source: Coca-Cola. Chart by author.

Inflation drove up its operating expenses last year, but it offset that pressure by reducing its head count and raising its prices. That resilience reinforces the bullish notion that Coca-Cola is an all-weather stock that can withstand tough recessions.

3. Its stable comparable EPS growth

From 2019 to 2023, Coca-Cola boosted its comparable earnings per share ( EPS ) at a compound annual growth rate (CAGR) of 6% -- even as it endured the COVID-19 pandemic, inflation, geopolitical conflicts, and currency headwinds from a strong dollar.

Data source: Coca-Cola. Chart by author.

For 2024, it expects to increase its comparable EPS by 5%-6%. At $65 a share, Coca-Cola's stock still looks reasonably valued at 23 times that estimate.

4. It returns most of its free cash flow to its investors

Coca-Cola's annual free cash flow ( FCF ) fluctuates from year to year, but it's still steadily risen from $8.4 billion in 2019 to $9.7 billion in 2023. It also usually returns most of that cash to its investors through its dividends and buybacks.

Data source: Coca-Cola. Chart by author.

It spent 100% of its annual FCF on $8.0 billion in dividends and $1.7 billion in net buybacks last year, and it expects to generate $9.2 billion in FCF in 2024.

5. It's a Dividend King

Coca-Cola's stable growth has enabled it to raise its dividend annually for 62 consecutive years, making it a Dividend King . These elite companies have maintained a streak of annual dividend hikes for at least 50 straight years.

Source: YCharts.

Coca-Cola's forward yield of 3% might not seem too impressive today, especially when short-term CDs are still paying more than 5% yields, but it should become more attractive as interest rates decline. Coca-Cola's annual dividend hikes should at least keep pace with inflation -- and reinvesting those dividends can generate big compound returns for long-term investors.

For example, a $10,000 investment in Coca-Cola 10 years ago would be worth $15,300 today and pay out $450 in annual dividends. But if you had reinvested those dividends, your investment would have grown to $21,400 and be paying $635 in annual dividends -- which could then be automatically reinvested to generate even bigger compound gains.

So is Coca-Cola right for your portfolio?

Coca-Cola is a well-balanced consumer staples stock that generates stable returns. It won't dazzle any growth-oriented investors, but it should hold steady in bull markets and remain a popular safe-haven stock during bear markets.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy .