Key Points
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The consumer staples sector may lack fizz this year, but Coca-Cola is up double digits.
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In a market led by rapid growth in tech, volatile price swings, and economic worries, Coke offers something completely different.
Lumped in with three dozen other members of the struggling Consumer Staples Sector Select ETF (NYSEMKT: XLP), shares of Coca-Cola (NYSE: KO) have quietly side-stepped the group’s market-trailing defensive slump and managed to deliver a respectable 12% year-to-date return.
Even though the Atlanta-based beverage giant’s performance still lags the S&P 500‘s 15% gain, Coca-Cola’s relative resilience — it’s one of only 10 staples sector stocks up more than 10% this year — is a testament to its enviable status as a blue chip, long-term, core holding.
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Looking at its present size and state — a market cap of almost $300 billion, annual earnings per share (EPS) pegged to rise 3.7% to $2.99, driven by 2.9% sales growth to $48.2 billion — Coke’s low-single-digit trajectory isn’t especially thrilling.
Image source: Getty Images.
The benefits of boring
However, what keeps investors very interested — including 10% stakeholder Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) — is the predictability of Coca-Cola’s performance combined with its steady dividend growth.
On the former front, Koyfin data shows Coca-Cola hasn’t missed a sales or EPS estimate for at least five years. On the latter point, Coca-Cola is on the Dividend Kings list, having increased its payout for 63 consecutive years. At 2.9%, Coke’s dividend yield is slightly above average for the staples sector and the broader markets, and has grown at a 4.5% annualized rate over the past 10 years.
The combination of Coke’s slow and steady earnings growth and consistently rising income delivers a compelling total return story. Analysts currently see the beverage company adding over $1 billion of additional net income a year that would lift adjusted EPS by about 40% from $2.99 in 2025 to an estimated $4.26 in 2030.
Using the midpoint of Coca-Cola’s 10-year P/E ratio range (22x), that implies a 2030 share price of around $93, plus over $11 of cumulative dividend income, for an estimated — and respectable — five-year total return of about 55%.
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Matthew Nesto has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.