Are you a fan of keeping things simple when it comes to investing? You should be. Less is often more. Investors who don't fall into the trap of making things unnecessarily complicated often end up with bigger gains than those who do.
To this end, anyone looking for a new all-around stock pick for their portfolio should consider The Coca-Cola Company (NYSE: KO) . There are three reasons you might want to take on an oversized stake in this simplistic and predictable name.
1. Coca-Cola manages several powerful brands
You know the company mostly by its namesake cola, but it's so much more than that. Coca-Cola also owns brands like Powerade sports drink, Minute Maid juices, Costa coffee, Gold Peak tea, Dasani water, and Barq's root beer (just to name a few of its 200-plus brands). The beverage giant's got something to sell to everyone regardless of ever-changing consumer preferences, and like the world's best-known soda, many of these other products are leaders of their respective categories as well.
It's not just a wide range of leading brands, however, that makes Coca-Cola stock such a terrific buy. It's how they became that way.
See, Coca-Cola is a master of the art and science of marketing. Its lifestyle branding has made its flagship brand name a piece of pop culture, and its sheer size (and deeper pocketbook) means it's able to out-promote any of its competitors. It may give the company an unfair advantage, but investors don't want a fair fight. They want to own companies that can continue to dominate the competition .
2. Coca-Cola's reliable results are made that way by the business model
If you want proof that Coca-Cola is indeed at the top of its game, one only has to look at its historical results. But the results likely weren't achieved in the way you might think.
Contrary to a common assumption, Coca-Cola probably didn't bottle and/or distribute the beverage you enjoy that bears its name on the label. It outsources most of that work to third-party bottlers that buy flavored syrups from The Coca-Cola Company itself. This model ends up generating somewhat less revenue for Coca-Cola, but it ultimately translates into more reliable profits and wider profit margins. That's because much of the costs and risks related to production falls to the bottlers themselves.
This has been an especially helpful dynamic of late because of the soaring costs of ... well, everything. Consumers still want their favorite beverages. It's the bottlers that have largely been forced to figure out how to keep them affordable, up to and including accepting thinner profit margins.
3. Coca-Cola's dividend is reliable, and it grows reliably too
The net result of Coca-Cola's resilient revenue and its inflation-driven growth is ever-growing income supporting ever-growing dividends.
As incredible as it may seem, not once since the last of its major divestments of its own in-house bottling operations back in 2017 has this company failed to turn a quarterly profit. And that includes a challenging early 2020 when the earliest part of the COVID-19 pandemic took a big bite out of revenue. Since then per-share earnings have bounced back above this stock's quarterly dividend payment, and there's every reason in the world to think things will remain this way.
KO Revenue (Quarterly) data by YCharts
What the chart above doesn't fully illustrate is just how reliably The Coca-Cola Company grows its bottom line so it remains in a position to improve its payouts. As of February of this year, Coca-Cola has raised its annualized dividend payment for 62 consecutive years without ever crimping its ability to remain competitive. You can plug into that growth trend while the stock's yielding 2.7%.
Focus on the company -- not the stock
Valuation-minded investors might balk at Coca-Cola shares' forward-looking price/earnings ratio of 25, or the fact that the stock's currently trading just a bit above analysts' consensus target of $71.29. Both imply there may not be a whole lot of upside left to tap into right now or for a while.
That's not exactly how the stock market works though ... at least not for names like Coca-Cola. You should expect to pay a bit of a premium for quality like this, just as you can expect this stock to lead the analyst community as much as be led by it.
Either way, in that this stock is best viewed as a long-term holding, such near-term price and valuation measures don't really matter much. Long-term-minded investors aren't buying stocks, after all. They're buying stakes in companies. As Warren Buffett so famously says, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Coca-Cola is most definitely a wonderful company.
Coca-Cola is also the fourth-biggest position currently held by Warren Buffett's Berkshire Hathaway , by the way. That alone speaks volumes about the quality of its prospects.
James Brumley has positions in Coca-Cola. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy .
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