KO Stock: Great Choice for An Income Portfolio?
The Coca-Cola Co (NYSE:KO) stock is a great pick for buy-and-hold-type investors. The reason I say this is that KO stock perfectly fits with the criteria many passive investors look for in companies they make part of their portfolios.
With passive investing, investors try to maximize returns over the long run by avoiding frequent buying and selling. Passive investing is not for investors who are looking to make a big kill with one great trade; rather, they hold on to their investments and build their wealth over time.
Now, let’s figure out if Coca-Cola is a great passive investment idea for income investors who have just started to build their retirement portfolio.
Here is the most impressive fact about this iconic global brand which will likely surprise you: for the past 124 years, the company has never missed a dividend payment.
If you’re a passive investor and don’t want to exit your trade, this dividend history should be a source of great satisfaction in the next five or 10 years. Not only have investors in KO stock received a dividend check each quarter since 1920, but they also enjoyed dividend hikes in each of the last 54 years.
This performance earns KO stock the status of “dividend king,” which reserved for those companies which have raised dividends for at least 50 consecutive years.
How does a company manage this level of predictability for its investors? The answer to this question comes from this fact that Coca-Cola supports a global brand which is a cash-generation machine for its investors. Coca-Cola has 20 brands, each with sales of about $1.0 billion. More than 1.9-billion servings of its beverages are enjoyed by consumers in more than 200 countries each day. (Source: “Coca-Cola At A Glance: KO101 Video and Infographic,” The Coca-Cola Co, last accessed November 18, 2016.)
The basic idea behind a passive investment strategy is that a stock–or, more broadly, equity markets–give positive returns if given enough time. KO stock has proven time and again that it can produce hefty returns for investors over a long period.
At today’s price, KO stock has an annual dividend yield of 3.4%. Over the past 10 years, the company’s quarterly dividend rate has more than doubled. In February 2016, the board of directors approved a six-percent hike in Coca-Cola’s quarterly dividend to $0.35 per share. (Source: “The Board of Directors of The Coca-Cola Company Announces 54th Consecutive Annual Dividend Increase,” The Coca-Cola Co, February 19, 2016.)
One of the biggest proponents of passive investment strategy is Warren Buffett, the world’s most successful income investor. And his love for Coca-Cola stock isn’t a secret.
Also Read:
The Coca-Cola Co: Yield, Dates, Splits, Prediction, and Everything You Need to Know
Will Coca-Cola Stock Raise Its Dividend in 2017?
Buffett’s investment firm, Berkshire Hathaway Inc. (NYSE:BRK.B), was reported to be holding 400-million shares of Coca-Cola, worth about $17.0 billion at today’s price. (Source: “Form 13F Information Table,” U.S. Securities and Exchange Commission, last accessed November 18, 2016.)
There is no doubt that market swings will test passive investors’ patience and their belief that markets correct themselves over time. KO stock has no exception to this reality.
In this decade, the biggest challenge for Coca-Cola is how to transform itself into a company which also offers healthy food choices to its customers, who are becoming more health-conscious and avoiding its sugary and fizzy drink options.
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Final Word on KO Stock
KO stock has been under pressure for many years due to these challenging market condition. It’s down more than two percent in the past year, missing a rally that the S&P 500 is going through.
To overcome this declining trend in demand for its sugary drinks, the company is creating new brands and reformulating existing drinks to cut sugar. The company has 200 reformulations in the works that are aimed at reducing the sugar content of its existing products.
Despite these challenges, there is no threat to the company’s ability to continue with its tradition of increasing dividends each year. KO stock may be a good test case for investors who still believe that passive investments over time outperform other strategies.