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Beverage titan The Coca-Cola Co (NYSE: KO ) has long been an investor favorite with its top-of-the-market position and ever-increasing dividend. Traders who jumped on board KO stock at the very beginning will have seen their shares rise nearly 6,000%. But over the past 5 years the soda maker has underperformed the market and disappointed its loyal following.
Coca-Cola stock has been the victim of quickly changing consumer tastes and, so far, its efforts to revive the public's interest in soda have been lackluster at best. Still, the firm offers a great deal of security and a solid dividend for those who believe in the firm's future potential.
Pro: Market Leader
One of the biggest reasons investors flock toward KO stock is the fact that Coca-Cola is number one in the beverage industry. Coke's iconic logo is recognized by 94% of the world's population and consumers guzzle 1.9 billion servings of the firm's drinks daily.
Coca-Cola's strong brand image gives the company a lot of pricing power and despite recent setbacks as consumers put more value on healthy drinks, the firm still commands a higher price for its products than lesser-known competitors.
Con: The Soda Slide
Perhaps the largest concern that investors have about KO stock is the fact that people are simply turning away from soda and sugary drinks. Coca-Cola's most recent earnings reports prove that people are buying fewer sugary drinks and most analysts believe that trend is going to continue.
While Coke has worked to add new, on-trend beverage offerings to its repertoire, the fact remains that KO is only operating in the beverage space. Coca-Cola's main rival, Pepsico Inc. (NYSE: PEP ) has diversified into the snack foods industry, giving investors a bit of cushion through the dip in beverages. Coca-Cola, on the other hand, has yet to make a food-related acquisition - something that might bolster investor confidence about the firm's future.
Pro: Revamping Products
A huge benefit of being such a large, experienced company is that Coca-Cola has the ability to roll with the punches and change with the times. The firm has seen its Diet Coke sales slide considerably, so this month the company launched a new version of the drink meant to revive its image and recapture consumers' attention.
The company added four new flavors of Diet Coke and re-worked the can to create a sleeker design. While it remains to be seen whether KO's efforts will bring consumers back to the table, the firm has put years of R&D behind the new campaign, making it much more likely to succeed.
There's also growth potential in KO acquisitions as well. Last year Coca-Cola acquired sparkling water brand Topo Chico in a bid to compete with LaCroix. While Topo Chico has nowhere near the massive following that LaCroix does, it does have its own band of dedicated followers and, thanks to Coke's impressive distribution network, that figure is expected to continue growing.
There's also some chatter that KO might acquire energy drink maker, Monster Beverage Corp. The firm already owns an 18% stake in Monster and taking over the company completely could be a smart next step.
Con: It's Expensive
While KO stock does have the size and brand recognition to command respect, the firm's most recent performance and expectations for the future don't justify its current price tag. KO's price-earnings ratio is a staggering 42.4. That's nearly double PepsiCo's 23.5 P/E ratio.
The firm's earnings-per-share growth this year is only expected to be around 5% - so at the moment KO stock looks overvalued.
Pro: Rewarding Shareholders
One big reason investors are willing to overlook KO stock's shortcomings is the fact that the firm is kind to shareholders. Coca-Cola's dividend yield is currently 3.32%, and the firm's status as a dividend aristocrat suggests that figure will continue to rise. The company has been raising its dividend annually for the past 55 years and, in 2016, the company returned $8.4 billion to its shareholders .
Con: Better Buys
It's not that KO stock is necessarily a bad pick, but it's certainly not at the top of my list. Not only is Coca-Cola betting big on sugary beverages at a time when they're clearly going out of fashion, but the firm's position in the consumables space may not be the best place to put your money right now. Other industries - like energy and financials - have a better chance to making a big comeback this year and they each have their own solid, sturdy performers.
The Bottom Line on KO Stock
Unless you're a retiree looking to preserve your wealth, KO stock isn't your best bet. There are far too many headwinds facing the company and uncertainty in the beverage industry doesn't bode well for the stock over the next few years.
There's a lot to like about the stability and secure dividend payments that KO offers, but, then again, its rivals - like PepsiCo - are offering similar benefits at a much lower price.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
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