3 Reasons to Buy Coca-Cola Stock Like There's No Tomorrow

Coca-Cola stock is within 1% of the all-time high it hit earlier this month. Just 6% of exchange-traded stocks are within 3% of their all-time peak, and Coca-Cola happens to the largest one by market cap. You don’t expect a gravity-defying stock to be cheap, and it’s a fair knock on the investment today.

Coca-Cola is fetching 25 times this year’s expected earnings and just shy of 23 times next year’s profit target. Years of resilient growth through economic downturns and even a long-term domestic trend away from both sugary and diet soft drinks are worth a market premium. The stock has seen its revenue rise 26% and operating income climb 35% from where it was five years ago, but that’s less than the stock’s 52% jump in that time. You can go back to the sudsy era of the dot-com bubble when Coca-Cola was going for more than 50 times earnings, but it’s clearly not growing annually at a pace that makes it a screaming bargain at today’s multiples.

Thankfully Coca-Cola has a funny way of consistently blowing past analyst earnings estimates. The beats continued over the past year of quarterly results.

Data source: Yahoo! Finance. EPS = earnings per share (adjusted).

These aren’t mammoth-sized positive surprises, but a win is a win. It also should encourage investors to consider that Coca-Cola is trading for less a bit less than 25 times what it will ultimately earn this year and beyond.

Revenue won’t rise every year for Coca-Cola, even though historically some of the annual dips are the result of the global soft drink leader selling off its bottling businesses to independent operators. The one thing that is almost a lock to keep rising is the size of its quarterly distributions. Coca-Cola hiked is payouts in February, something that it has done for 63 consecutive years.

The stock is now yielding a decent 2.8%, a dividend that will look even better if the economy softens and interest rates continue to head lower. More importantly for folks hoping that Coca-Cola can keep its disbursements growing, Coca-Cola’s forward dividend is less than 70% of what it’s expected to post in adjusted earnings this year. Put another way, the payout ratio gives it plenty of wiggle room to keep this enviable streak going.

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Rick Munarriz 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.

3 Reasons to Buy Coca-Cola Stock Like There’s No Tomorrow was originally published by The Motley Fool