The Coca-Cola Co (NYSE:KO) makes one of the world’s most iconic soft drinks. That kind of brand recognition does not come easily or cheaply. It’s 124 years old this year. That means KO stock has been through tougher times than we’re going through right now and prevailed.
And it’s a dividend aristocrat, meaning it has grown its dividend every quarter for more than 25%. That kind of rock-solid dividend growth and impressive yield (it’s almost double the average S&P 500 yield of 1.7%; KO is now yielding over 3.3%) is certainly comforting in today’s turbulent market.
But with all this going for it, KO stock is simply treading water. It’s actually slightly in the red, year-to-date.
The main problem that has everyone concerned is the fact that consumers are looking for healthier alternatives to the soft drinks that have been such a major revenue stream.
KO Stock Is Facing Several Challenges
Coca-Cola has adapted to that and continues to make efforts to find new growth markets in energy drinks, teas and juices. The problem is, it takes a while to turn a $180 billion ship that has production and distribution facilities around the world.
Also challenging KO stock has been the slow growth in major overseas markets like China, Brazil and Argentina.
But this isn’t just a problem for Coca-Cola, but also its competitors PepsiCo, Inc. (NYSE:PEP) and Dr Pepper Snapple Group Inc. (NYSE:DPS). All are having to retool in their businesses in the U.S. and abroad to keep growth alive.
The advantage KO has is that it has already been moving in that direction for a few years now.
Its water lines — Dasani, glaceau smartwater and vitaminwater — are a strong addition. And its Fuze tea and Honset Tea brands are also making progress. Its long-time juice brands Minute Maid and Simply Orange have been bolstered by Odwalla.
But the most compelling addition has been the distribution agreement with Monster Beverage Corporation (NASDAQ:MNST). Basically Coca-Cola gave MNST its energy drink business in exchange for a distribution deal and revenue share on its products.
Through Q2, Monster was blowing away analysts’ expectations. Growth has really taken hold now that MNST is attached to KO’s powerful global production and distribution facilities.
But this transition from its core soft drink brands to newer channels of revenue will take some time. And analysts are not patient people. However, their impatience is our advantage. While they discount KO stock into the end of 2016 — Coca-Cola has already guided lower for the year — that is only a short-term situation.
Long-term, KO offers great growth potential with its second century of operations and its dividend will remain an aristocrat for decades to come. And in an increasingly volatile market, this kind of stability at a discount is a rare opportunity.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
