The S&P 500 has done well lately. Over the last year, the index has gained about 25%.
But certain stocks have been left behind. During this span, Coca-Cola's (NYSE: KO) share price lost 7%.
A stock lagging the market doesn't necessarily translate into a buying opportunity. After all, the stock market has proven pretty efficient. But in this case, dividend-seeking investors should seize this moment to buy Coca-Cola shares.
It's time to uncover why you should invest your hard-earned money.
Image source: Getty Images.
Popular products
Coca-Cola has become more than a soda company. It sells a range of popular beverages like water, sports drinks, and juice. Brand names include Coca-Cola, Sprite, Dasani, and Minute Maid.
While most of last year's unit volume, 69%, came from soda, that still leaves about one-third derived from other beverages. Given Coca-Cola's size and brand recognition, it dominates most competitors. Its major competition comes from PepsiCo, which also sells snacks and convenience foods.
Despite Coca-Cola's, it continues to grow revenue and profitability. The company's adjusted revenue, which removes foreign currency exchange translations and acquired/divested businesses, rose 12%. Higher prices accounted for the majority, but volume contributed 3 percentage points. Management expects 6% to 7% revenue growth this year. Top-line growth helped fuel a 20% gain in adjusted operating income.
Rising dividends
Coca-Cola's higher profitability translates into free cash flow (FCF). It generated $9.7 billion in FCF last year.
The company uses this prodigious FCF to reward shareholders. Hence, while Coca-Cola's business may not excite investors like a fast-growing company would, it does something many of those don't at this stage of their development. Coca-Cola pays investors ever-increasing dividends.
A couple of months ago, the board of directors announced a 5.4% increase in dividends. I see that as a positive sign about management's outlook. This also marked 62 straight years with a dividend hike. That makes Coca-Cola a Dividend King. This elite group consists of companies that have increased payments for at least 50 consecutive years.
Coca-Cola's stock has a 3.3% dividend yield. That's more than double the S&P 500's 1.4%.
Stock valuation
The share price has recovered somewhat since early October. But that shouldn't dissuade income investors from jumping in.
The shares sell at a price-to-earnings (P/E) ratio of about 24. A year ago, the P/E multiple was about 28. By comparison, the S&P 500 has a 28 P/E ratio.
It's an impressive feat when a company not only pays stable dividends, but also raises them year after year. Coca-Cola has done it for more than six decades, in good times and bad. That has included severe recessions, hyperinflation, stagflation, and the pandemic, to name a few. And Coca-Cola's steady profit growth doesn't seem like it'll stop anytime soon.
With a stable business, popular products, strong cash flow, and a relatively attractive valuation, Coca-Cola looks like an attractive investment option. Then, you can enjoy your dividend payments for years to come.
Should you invest $1,000 in Coca-Cola right now?
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
