- Coca-Cola has significantly outperformed the S&P since the start of 2016.
- With a consistent dividend, stable earnings, and low volatility, this company is a top defensive stock.
- Although not trading at a discount, Coca-Cola is a great company trading at a fair price.
Coca-Cola (NYSE:KO) stock has fared far better than most blue chip stocks since the start of 2016 and there is a reason for it – it’s still a great defensive stock. While investors may have been split on whether Coca-Cola is investable in a bull market with low interest rates where all eyes are on growth, in the current market which has been taking a consistent beating, investors are coming to the realization that Coca-Cola stock might be the perfect choice for their portfolio.
As you can see, Coca-Cola has significantly outperformed the S&P since the start of 2016. The reason is simple – stability. When there is a downturn in the market and investors fear entrance of a bear market, there is a demand for defensive stocks that offer consistent dividends and stable earnings. And with a 130 year history, stable dividend payouts, and beta of .77, there is no question that Coca-Cola fits that bill.
Coca-Cola pays a solid dividend yield of 3.11%, and I have a feeling it will get boosted a quarter or so after earnings as the company historically always increases its dividend payout. The company’s growth is stagnant, but their strong margins separate them from the pack. Their net margin for the TTM is 15.2%, which may seem low compared to previous years, but is still far better than competitor Pepsico (NYSE:PEP) 7.8% margin who is leveraged with significantly more debt. Both companies face similar topline growth issues, but Coca-Cola should stand out as the more viable investment opportunity for defensive income investors as the company offers a bigger dividend yield, a stronger bottom-line, and less debt.
At first glance, a PE ratio of 27.2 may seem pricey, and it kind of is. However, it mirrors the industry average, and with the current volatile markets investors are seeking comfort in this defensive stock, so you aren’t going to get a huge discount on this one. Coca-Cola has increased free cash flow every year since 2011 and has FCF of almost $8.6 billion for the trailing twelve months which implies it is trading at 21.6X FCF. And with a forward PE of 19.1, this stock doesn’t look so high priced anymore. I am certainly not promoting Coca-Cola as a value investment though but as a defensive one. Therefore, investors will be paying for a very good company at a fair price – nothing more, nothing less.
Coca-Cola stock is one of the best defensive stocks on the market and investors know it. Coca-Cola stock has remained quite resilient throughout the recent market volatility and will remain one of the safest dividend plays out there. This one is not going to make you rich, but it offers stable and historically increasing dividend payouts, along with a diversified business within the beverages industry. If you are looking for a place to stash your cash to weather the storm and want something outside of the usual utility industry, Coca-Cola might be the place for you.
(Correction: The article originally contained a chart comparing YTD performance of Coca-Cola and NASDAQ)