Up 7% in 1 Month, Is Coca-Cola Stock About to Hit a New All-Time High? | The Motley Fool (2024)

The S&P 500 and Nasdaq Composite are both up a little over 1% in the last month. Meanwhile, the consumer staples sector is up over 4% during that time, and Coca-Cola (KO 0.97%) has been a big part of that sector gain. co*ke's stock price is up 7.4% in just the last month. The move has co*ke trading within a couple of percentage points of its all-time high of $64.99 a share set back on April 24, 2023.

Here's why Coca-Cola has what it takes to hit a new all-time high, and why the dividend stock is worth buying now.

A model of consistency

Out of the thousands of businesses that trade on the U.S. stock market, co*ke may be the most consistent and reliable company out there for a beautifully simple reason -- you know what you're getting when you buy the stock.

You're already probably familiar with many of co*ke's beverage brands, such as Gold Peak tea, BodyArmor and Powerade sports drinks, Costa Coffee, Schweppes and Topo Chico seltzers, Dasani water, Minute Maid juices, Sprite sodas, Vitamin Water, and more. And even if you haven't extensively studied the business, you probably have a good grasp on how co*ke makes money.

It's all about building a strong brand portfolio across different beverage categories and generating a return that can be used to reinvest in the business, grow the dividend, and repurchase stock. Of course, executing that strategy is complex. But the framework is easy to understand.

From an investment standpoint, co*ke sets clear expectations for its shareholders. It's not going to grow sales or earnings at a breakneck pace, but it does need to deliver throughout the economic cycle and grow earnings at a similar rate to the dividend to avoid making its payout ratio too high. To do that, co*ke has to make sure its acquisitions pay off, that it manages its supply chain well, and that it doesn't get so complacent that it becomes an inefficient business.

A successful turnaround

Historically, co*ke has done a good job hitting the mark. But in 2017, co*ke's sales fell 15% in a year and its margins were depressed. co*ke has since turned its business around. And after breakneck sales growth over the last few years thanks to strong pricing power, co*ke is finally on the brink of surpassing its sales record from more than a decade ago.

KO Operating Margin (TTM) data by YCharts

co*ke's mid-to-late-2010s challenges are a good example of how even the best companies go through setbacks. However, a successful turnaround can help improve investor confidence and build a track record for reliability.

A yield built on quality and quantity

Speaking of reliability, co*ke's dividend is one of the most rock-solid payouts on the market. The company has paid and raised its dividend annually for 62 consecutive years, making it a Dividend King. The recent 5.4% raise brings the dividend to $0.485 per share per quarter, or $1.94 per year -- good for a yield of 3.1%.

There are many well-known Dividend Kings with track records of increasing their payouts. But plenty don't have yields as high as Coca-Cola's. Like co*ke, Walmart and Procter & Gamble are Dividend Kings in the consumer staples sector. But Walmart has a yield below 1.5%, and P&G has a yield of 2.4%.

co*ke's dividend is particularly secure thanks to the company's recession-resistant business model. co*ke has also made meaningful improvements to its balance sheet.

KO Net Total Long Term Debt (Quarterly) data by YCharts

The chart shows that its total net long-term debt, debt-to-capital ratio, and financial debt-to-equity ratio are all near their lowest levels in five years. Having a strong balance sheet and a manageable debt position leaves more room for dividend raises and buybacks.

As co*ke has turned around its business, it has been able to repurchase more of its stock. Over the last 12 months, it has done $1.5 billion in buybacks, around the highest level in five years.

co*ke also has a reasonable valuation, with a price-to-earnings ratio of 25.3 and a forward P/E of 22.4. It's not a bad deal for the stock, considering the 10-year median P/E is 27.3.

co*ke remains a great buy now

co*ke's internal inefficiencies and acquisitions of Costa in 2019 and BodyArmor in 2021 left the company vulnerable to sales and margin pressure. But since then, co*ke has turned things around and reentered growth mode.

The business and the balance sheet are in their best shape in years, allowing co*ke to make sizable dividend raises and stock repurchases.

Despite knocking on the door of an all-time stock price high, co*ke remains a good value and has a high yield. It's the perfect passive income play for risk-averse investors or folks looking to supplement income in retirement.