Coca-Cola Stock: Buy, Sell, or Hold? | The Motley Fool (2024)

For good reason, soft-drink giant Coca-Cola (KO 0.14%) is one of Warren Buffett's favorite stocks. The company delivers robust sales in pretty much any economy, sending tons of cash back to investors through a generous dividend policy.

But with a year-to-date 4% dip while the S&P 500 is up 16% over the same period, co*ke investors are missing out on a strong market surge. Some might wonder if it's time to pop the tab on this stock -- or maybe it's better to keep it on ice.

Let's dive into the world's largest beverage company to see whether Coca-Cola is a buy, sell, or hold today.

The fizz: What's going right

There are many reasons to like Coca-Cola's business performance amid a turbulent American and global economy. The recently published second-quarter report highlighted the following virtues:

• Rebounding from pandemic declines: Coca-Cola has done an excellent job bouncing back from the pandemic. The company made an early decision to trim the brand collection and hone in on top performers -- a painful choice at the time that has paid off over the years. It has tackled COVID-related issues, such as a shortage of bottling supplies over the last three years, rebalancing its production many times to double down on the bestsellers in each distribution zone.
• International success: Many of Coca-Cola's overseas operations are soaring, driven by an opportunistic pricing policy and popular launches of new products. In the second quarter, Latin America reported organic sales growth of 25% year over year. Global ventures -- a segment including the Costa Coffee brand, co*ke's investment interest in energy-drink giant Monster Beverage (MNST -0.34%) and other brands with strong international growth -- delivered 76% of the company's adjusted operating income.
• Strong dividend: This is more of an inherent long-term quality than a singular second-quarter update. Either way, I have to highlight Coca-Cola's fantastic dividend.

With a 3% dividend yield and a six-decade streak of annual payout increases, Coca-Cola is a Dividend King that offers an attractive income stream for investors. This is one of the main reasons why Buffett says he'll never sell a single share of Berkshire Hathaway's 400 million stubs.

The Coca-Cola position Buffett has left unchanged since 1994 generated $704 million in dividend payouts last year. That's an effective yield of 54%, proving the power of playing the long game with Dividend Kings.

The flat: What's going wrong

If someone tells you everything is perfect, they're probably trying to sell you something that doesn't work. Like every other business on the planet, Coca-Cola also faces significant challenges today.

• Inflation pressures: The company faces a more challenging operating environment as inflation squeezes customers. While it has successfully raised prices to combat inflation, this strategy may not be sustainable. The sooner prices stop rising at historically fast rates, the happier Coca-Cola and its investors will be.
• Market dynamics: As investors feel more confident about the U.S. economy, they're heading back to higher-growth opportunities, leaving secure dividend stocks like Coca-Cola in the cooler.
• International roughness: It's a big world out there and never a smooth ride absolutely everywhere. As a global giant, co*ke runs into many regional challenges. The company faced weak demand in the Philippines, Pakistan, and Peru in the second quarter. Local hyperinflation undermined the results in markets like Turkey and Argentina.

The pour: The final verdict

A 5% drop in the stock price isn't enough to make me lose my taste for this classic beverage giant. If anything, it's a welcome price correction.

Coca-Cola comes with a strong balance sheet and a plethora of popular brands. The company has a long and successful history of adapting to ever-changing consumer tastes and global market conditions.

As for the stock itself, Coca-Cola is trading at the perfectly reasonable valuation ratios of 22x earnings and 6x sales. These metrics are a stone's throw away from their 10-year averages, on the lower side. So I'm not looking at a no-brainer buy signal on an undervalued stock here but, instead, a comfortable entry point for a long-term investment. Just don't expect any quick fireworks or a rapid rebound -- Coca-Cola's stock is neither a bargain nor a ripoff at these prices.

All together, these qualities make the company a solid investment choice for patient investors.

This could be your next buy if you want rock-solid security and an attractive dividend yield. Coca-Cola won't be a hot growth stock that sets the market on fire, but it doesn't have to be. It's a steady, reliable player that offers a refreshing blend of stability and income. While it may face near-term pressures, Coca-Cola's long-term prospects taste as sweet as ever.