Why Coca-Cola Is An Investment Haven

Aug. 6.14 | About: The Coca-Cola (KO)

Summary

The collective 5-year dividend growth at the Coca-Cola Company has been 8.27% with annual increment currently standing at 2.88%.

Coke was the most recognizable brand of the World Cup and its “The World’s Cup” campaign was the company’s largest ever global marketing initiative.

Gross margins improved by 61.7% with cost cutting strategies bearing fruit. Coca-Cola currently boasts better gross margins than both DPS and PepsiCo.

Within the pantheon of the most recognizable brands in the world stands a roped off area which, according to the 2012 Interbrand report, is reserved for the Coca-Cola Company. Founded in 1886, the multinational has been quenching thirsts worldwide with its unique lineup of nonalcoholic beverages and syrups, making it a frontrunner in the Food & Beverages industry.

In the past few decades the company has evolved from selling sugared waters, juices, teas, coffees and sports drinks to a marketing powerhouse that boasts over 500 brands of both sparkling and still beverages. Along with the iconic "Coke," 1.9 billion 8-ounce serving equivalents of notable (NYSE:KO) products like Vitaminwater, Minute Maid and Powerade are consumed around the world daily, thus cementing its right to the throne.

With the likes of Berkshire Hathaway present within its ranks as majority shareholder, the company will continue to overcome dips in stock in the foreseeable future and bring in big money. Here's why:

Dividend Performance

The Coca-Cola Company has been a safe bet on Wall Street since it started trading publicly back in 1919, and for good reason. It is frequently counted among the 30 stocks that make up the DOW and has consistently paid dividends since 1920. Standing toe-to-toe with giants like McDonald's (NYSE:MCD) and IBM, KO has consistently increased its dividend payout since half a century - a feat that has been replicated by only a select few in the United States.

The collective 5-year dividend growth at the Coca-Cola Company has been 8.27% with annual increment currently standing at 2.88%. Last quarter saw the company paying out dividends worth 30.5 cents which is the anticipated amount for the next two quarters as well.

Improved Marketing Strategies

The company has dedicated $400 million to incremental marketing efforts for 2014, and, till the end of the first quarter, has spent only 5% of that amount. "Share a Coke" initiatives are building up customer hype as well as promoting a new image of the brand. Sponsoring the recently concluded FIFA World Cup has yielded positive results as well with sales surging significantly during the tournament.

According to a study conducted by Millward Brown - a firm specializing in brand equity - Coke was the most recognizable brand of the World Cup and its "The World's Cup" campaign was the company's largest ever global marketing initiative.

Brand Valuation

Annual revenues have been growing steadily at almost 8% since the last 5 years. Statistics indicated a sharp increase in revenues in 2011 during acquisition of the American operation of Coca-Cola Enterprises or CCE whereas gross margins took a dip due to the acquisition. Apart from that the company has performed progressively since the last 3 years.

In the recently concluded quarter, the gross margins improved by 61.7% with cost cutting strategies bearing fruit. Coca-Cola currently boasts better gross margins than both DPS and PepsiCo.

Furthermore, a look at the forward price to earnings and forward price to sales charts will reveal that Coca-Cola is a more valuable brand than DPS and PepsiCo with investors willing to shell out more money for the brand considering future performance of the stock relative to the competition.

Cash flow operations have significantly increased from $6.4 billion to $10.5 billion at a compounded annual growth rate (CAGR) of 6.4%. Free cash flows which have improved from $5.5 billion to approximately $8 billion have ensured a strong financial position for the company.

Emerging Market Performance

Though domestic sales have been sluggish off late, the company continues to perform impressively in emerging markets. Coca-Cola has acquired 65% of carbonated soft drink or CSD sales in China - a country which accounts for 5% of Coca-Cola's overall revenues.

Adjustment To Health Trends

With customers in developed nations gravitating towards low-calorie beverages, Coca-Cola's CSD business faced serious risk. CSD accounts for 70% of Coca-Cola's total revenue as compared to 31% of PepsiCo. The timely introduction of "Coca-Cola Life" - a low-calorie beverage produced with stevia and sugar as sweeteners will attempt to mitigate that risk while the company removes its reliance on CSDs and promotes its "natural" waters.

With several such positive developments in the pipeline it would be safe to assume that Coca-Cola will continue to be a lucrative buy in the foreseeable future and an investment haven which continues to increase investor confidence.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.