This Warren Buffett favorite has a place in a diversified portfolio.
Almost two months into 2025, the S&P 500 (^GSPC -0.43%) is holding on to its gains from last year, but the index hasn’t moved much higher; it’s up just 4% so far this year. Valuations are higher than average, and that could signal some necessity for a correction.
But many companies are reporting solid performance, like Coca-Cola (KO -0.04%). After struggling with high inflation and higher costs, it demonstrated strong results in the 2024 fourth quarter. Here are three reasons to buy it right now.
1. Coca-Cola has pricing power
Coca-Cola is the largest beverage company in the world, and fans drink its popular products in 200 countries. Its namesake brand is one of the most recognized in the world, and people who love it are willing to pay a premium for it. That’s called pricing power.
There’s been some struggle as inflation makes everything more expensive, and Coca-Cola has had to balance absorbing and passing along higher costs. It has experimented with several ways to do this, with concepts including smaller packages and returnable glass bottles.
The glass bottle initiative has become an important effort in recruiting new customers to its brand, keeping costs lower while maintaining premium packaging.
Revenue increased 6% in the fourth quarter year over year and 3% for the full year, even though unit case volume increased 2% and 1% respectively. Organic revenue, which leaves out factors like acquisitions and foreign exchange, was up 14% for the quarter and 12% for the year.
Price/mix, which tracks how much growth came from pricing, was up 9% year over year in the quarter, with 8 percentage points coming from pricing action. Management sees that trend continuing into 2025, with pricing adding more to revenue than in a regular year, but ultimately moderating as inflation does.
2. It’s incredibly profitable
Coca-Cola has been at this for more than a century — it’s been around since 1886. It has a well-established formula for creating and marketing beverages and turning sales into profits.
For example, part of this strategy is acquiring new brands that already have a following, and as it integrates the brand into its distribution system, it can sell it to more people more efficiently.
Pricing power becomes even more important when there’s inflationary pressure, and pricing actions do more than increase sales. Successful price increases that don’t curb demand allow the company to cover increasing costs while still making a profit. Earnings per share (EPS) increased 12% year over year in the fourth quarter to $0.51, and for the full year, they declined slightly to $2.46.
In general, management charts its growth with comparable metrics, which take out one-time charges and the like. Comparable EPS also increased 12% to $0.55, while for the full year it increased 7% to $2.88. That beat the average Wall Street consensus of $0.52 for the quarter and $2.85 for the full year.
Minus a tax-related decrease, Coca-Cola generated $10.8 billion in free cash flow. This is how it can pay for its storied dividend and keep investors happy, as I’ll point out next.
3. Two words: the dividend
Even when Coca-Cola isn’t at its best, it provides an excellent benefit for investors in its almost unbeatable dividend. The company is a Dividend King, and it’s paid and raised its dividend annually for the past 62 years. There are only eight other companies on the market that have a longer track record.
Not all Dividend Kings have a high yield, since their value is in their reliability. But Coca-Cola’s dividend averages around 3%. At today’s share price, that yields 2.8% because the stock is up 11% this year, beating the market. That’s still more than double the S&P 500 average.
Coca-Cola isn’t a growth stock, and even though it’s beating the market right now, investors shouldn’t expect long-term market outperformance. It’s an excellent choice for a safe stock or a dividend stock for a well-diversified portfolio, and its recent results underscore its long-term investing thesis as a solid, reliable company you can hold forever.
