Not every potential big winner these days is a technology stock.
There’s never a bad time to buy a good stock. There are certainly better times than others, however, to jump into a new investment. The lower your entry price, the bigger your eventual return.
With that as the backdrop, growth-minded investors may want to step into a new stake in Coca-Cola (KO 0.25%) while shares are trading down 15% from their early September high. This stock isn’t discounted this much very often. Buy the dip while you still can.
Coca-Cola’s business is actually quite resilient
OK, Coca-Cola arguably stretches the limits of what qualifies as a growth stock; single-digit sales growth is the norm for the beverage giant. Investors keeping tabs on the company also know at least part of the reason for shares’ recent setback is last quarter’s slight dip in the volume of product sold. It’s something the market seemed to predict before the official third-quarter results were released last month. As it turns out, a bunch of consumers are still cost-conscious.
Now take a step back and look at the bigger picture. What Coca-Cola’s top- and bottom-line growth lacks in sheer size it more than made up for in reliable consistency.
In-the-know investors will be quick to point out that last quarter’s revenue actually did fall, for the first time since late 2020. Digging deeper shows that organic revenue grew an impressive 9%, all of which is attributable to price increases that consumers were willing to absorb despite feeling — and even being — a bit cash-strapped. It’s a testament to the raw strength of the company’s brands, which include Gold Peak tea, Minute Maid juices, and Powerade sports drink in addition to its namesake cola. Given enough time, its products will push through any economic headwind.
The funny thing is, this seemingly low-growth business is actually capable of producing the sort of gains you’d expect from more traditional growth stocks. It’s just driven in a way most people wouldn’t expect.
A different pathway to growth
Coca-Cola may not be a high-growth organization, but it’s certainly in a cash-rich business. Operating margins as well as net profit margins are routinely above 20%, readily supporting dividends that have grown every year for the past 62 years.
And this is no small matter, even if you’re not interested in dividend income. See, there’s a very good chance you’re underestimating the potential impact of reinvesting dividends in more shares of the stock paying them.
Although Coca-Cola stock’s typical dividend yield is rarely better than 3%, Its quarterly dividend has grown from $0.195 per share 30 years ago to $0.485 now. Also during this time, the stock’s price has improved from just under $13 to just a little over $63. In and of themselves both changes are healthy, but hardly jaw-dropping. Had you reinvested all of these dividend payments in more shares of a rising Coca-Cola stock during this time, however, a $10,000 investment then would be worth a little over $100,000 today.
KO Total Return Price data by YCharts
That’s a compounded annual growth rate of right around 8%, by the way, nearing the sort of yearly gains you’d expect from your typical growth stock.
Opportunity knocks
It could be difficult for investors who have only sought growth through growth stocks to change their tack and seek growth via tickers that are better known for paying dividends. But, numbers don’t lie. Patience pays off.
Sure, you can probably do slightly better with most proven technology stocks. You’d almost certainly experience more volatility — and suffer more anxiety — with those tickers, though. Coca-Cola is one of those names you can tuck away for a few years at a time, knowing it doesn’t need constant monitoring.
More to the point right now, whether your goal is income or growth or a little of both, Coca-Cola stock is on sale, discounted to a degree you just don’t see very often. Dive in while you still can.
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