Coca-Cola (KO) is an iconic American brand that is a household name both at home and abroad. Couple that with the 2.8% dividend yield and a massive portion of shares held by Warren Buffett and Berkshire Hathaway (BRK.B), and it seems natural to call Coke the ultimate low-risk income play.
But Coca-Cola stock has underperformed in 2013 significantly, and weak earnings lately hint at trouble. Coke earnings details showed North American sales volume slipped for the first time in 13 quarters as soda consumption continues to dry up amid a focus on healthier eating in the U.S. and changing consumer tastes.
Coke made excuses about wet weather sapping sales in its latest earnings, but there are bigger issues at work here.
For instance, a strong dollar could shave almost 5% off operating profit this year as exchange rates make foreign sales less profitable.
Yes, the dividend at Coke has been paid since 1893. But the fizzling soft drink sales based on health trends and the headwinds caused by a strong dollar outweigh any income potential in the near-term.