This Dividend King Is Crushing the Market. Here's Why It Offers Years of Passive Income Growth.

Yahoo

25-05-2025

Investors see Coca-Cola as a safe stock to own when there's market and macroeconomic uncertainty.
The company has an efficient global operating system that's also localized and has low exposure to tariffs.
Coca-Cola is a Dividend King with an incredible 63-year track record of payout hikes.
10 stocks we like better than Coca-Cola ›
Many of today's top growth stocks are trailing the market this year as investors worry about tariffs. Even though the U.S. and China earlier this month announced a deal that postponed the larger part of President Donald Trump's 145% tariffs on Chinese imports (and China's reciprocal 125% tariffs on U.S. goods) for 90 days, the tariff overhang remains. That deal left most Chinese imports into the U.S. facing a still-hefty 30% tariff, and imports from most other nations are still under their new tariff regimes. Many of those countries have responded with tariffs of their own on U.S. goods.
By now, many U.S. companies have offered their initial outlooks for the year ahead: Their views range from not expecting any impact from this trade war to acknowledging that they will have to raise their prices to reflect the costs of those tariffs, but there's uncertainty all over.
These are the kinds of volatile conditions in which stocks like Coca-Cola (NYSE: KO) can soar. The beverage giant is a solid, dependable winner that thrives in many circumstances. Plus, it's a Dividend King, reliable for providing passive income growth. Let's see why it could be an excellent candidate for your portfolio.
With $47 billion in trailing 12-month sales, Coca-Cola is the largest beverage company in the world. But you might not realize that it was struggling for a really long time before CEO James Quincey came on board in 2018 and helped the company get its act together. Lackluster growth started to speed up before the pandemic hit, and the company restructured amid global lockdowns, emerging as leaner and more efficient. It now owns about 200 global brands underpinned by the Coca-Cola label, its core business, which is reliable for high sales. According to Statista, Coca-Cola and one of its many other owned brands, Sprite, have the top two spots in U.S. brand awareness among soft drinks.
There are several reasons investors flock to Coca-Cola when there's uncertainty. People always need to drink, and Coke's beverages are cheap enough for fans to keep buying them even when budgets are tight. It has also experimented with container size and packaging to make sure that servings of its drinks are still available at affordable prices despite inflation and tariff-driven price hikes.
During the first-quarter earnings call, Quincey explained how the company is well-built to manage through increased tariffs. Most of its beverage production occurs in the markets where those beverages are bought and consumed, so a large percentage of its business won't be exposed to higher import taxes at all. The soft drink concentrates it uses in U.S. production are made in the U.S., even though it has overseas facilities for other regions. Price increases on products that it will face due to tariffs, such as orange juice and aluminum, are expected to be minimal relative to the company's cost structure and the size of the business. In those cases, Quincey said the company has many levers it can pull to offset some of the impact, and it has many financial hedging positions in place to deal with changing foreign currency exchange rates because it operates in so many countries.
The strong brand, perhaps unrivaled in beverages, together with the robust and efficient operating model create a company that's reliable in good times and downturns alike. In good times, it's taken for granted. In challenging times, investors have confidence in Coca-Cola.
The dividend is another reason Coca-Cola is considered a safer stock by so many investors. The company is a Dividend King with a 63-year streak of annual payout hikes that it has maintained through all kinds of economies and markets. That's no small feat. Only a handful of elite companies have equaled or exceeded that streak. There's no way to know what will happen in the future, but the company has been tested many times, such as at the beginning of the pandemic, when it reported double-digit sales declines. It still raised the dividend, even though the payout ratio surpassed 100%. In that light, it's understandable why people view it as being a reliable source of growing passive income during almost any conditions.
These are good reasons for investors to love dividend stocks, and Dividend Kings in particular. But Coca-Cola also offers a relatively high yield -- 2.8% at today's price. It's usually higher than that, but since Coca-Cola stock is flying this year, up 14% vs. a flat S&P 500 -- which, for comparison, is yielding about 1.3% -- it's lower than usual.
Coca-Cola can be expected to keep distributing its profits to shareholders forever, and raising its dividend annually for the foreseeable future. It won't be a top growth stock, but it can provide tremendous value over the long term to a well-diversified portfolio.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
This Dividend King Is Crushing the Market. Here's Why It Offers Years of Passive Income Growth. was originally published by The Motley Fool