Here’s What Makes This Dow Jones Stock So Safe
The Dow Jones Industrial Average primarily tracks industrial companies, and Coca-Cola (KO 0.17%) remains a top Dow Jones stock, having consistently outperformed the bulk of other options on the popular index during economic turmoil. has performed. With the Fed continuing to raise interest rates and the real possibility of a recession, investing in a safe Dow Jones leader could yield strong returns.
The international appeal of a strong beverage portfolio
There are over 200 distinct brands of Coca-Cola. Its diverse range of coveted sodas and juices along with coffee and even alcoholic beverages are available across the globe. That product diversity helped the company deliver better than 16% organic revenue growth projected in its latest earnings report in July, and showed great resilience as the pandemic recovery continues.
Sales grew 8% in India, Mexico and Brazil for sparkling soft drinks. Its hydration products, which include Dasani Water, Powerade and the recently acquired BodyArmor, grew 7% with market share in Latin America, Europe, the Middle East and Africa. Tea saw a 4% increase in sales, with sales growth in Japan, Brazil and Western Europe. The Costa brand continues to grow worldwide, and combined with other coffee offerings, the segment has increased sales by 15%.
History shows the safety of Coca-Cola as the Dow Jones leader. The stock debuted in 1919 at $40 per share, which may sound high, but it has split 11 times in the intervening years. It is also a dividend king, having increased its payout annually for more than 50 straight years.
During the Great Recession, shares fell to as low as about $20.60 per share before rebounding. They recovered faster than the Dow Jones as a whole, reaching the last recent high in December 2010. When the pandemic plunged share prices from about $60 to $38.30, Coca-Cola once again proved its resilience, recovering within a calendar year.
when the markets are flat
That’s not to say that things will be as smooth as a bottle of Vitaminwater for the industry giant. Many headwinds exist outside global markets. Negative reports about the amount of waste produced by Coca-Cola products can damage its public image. This concern prompted the company to invest heavily in “a circular economy”, including reusable bottles and to move its World Without Waste project globally.
PepsiCo continues to fall on the heels of the beverage market leader with a market capitalization of about $236 billion, compared to Coca-Cola’s recent figure of $273 billion. Its expansion into a variety of shelf-stable foods and pantry essentials continues to drive the company’s success, but this additional diversity could take away resources from its fight to take a greater share of Coca-Cola’s beverage market. Over the past six months, both companies beat the S&P 500, but Coke gained more than 13 percentage points compared to PepsiCo’s 9 percentage points.
Coca-Cola’s latest earnings report showed a decline of a full percentage point (from 31.7% to 30.7%) in overall operating margin year over year. This is more likely due to increased logistics and distribution costs than inflation and market decline, as demand numbers remain favourable. The BodyArmor acquisition is largely attributable to the decline in margins.
Sales continue to soar amid the ongoing pandemic, and Coca-Cola’s dividend yield currently stands at about 2.7%. The stock’s continued resilience in the face of an economic downturn could make it a solid recession-resistant pickup in uncertain times. A knowledgeable investor considers many factors to decide whether a recession is the right time to invest in a company. The company’s latest earnings report and historical evidence show that Coca-Cola has everything it needs for a quick fix.
Nicholas Robbins does not hold a position in any of the stocks mentioned. The Motley Fool recommends the following options: Long January 2024 $47.50 call on Coca-Cola. The Motley Fool has a disclosure policy.