Coca-Cola is a Dividend King with a high yield and an attractive valuation.
What does it take to become a millionaire investor? You could bet everything on one stock and pray that it works out well. Or you could build a diversified portfolio that includes both reliable stocks and riskier, more growth-oriented choices. The second option is likely to be the best one for most investors.
And, if you go that route, you’ll want to consider beverage king Coca-Cola (KO 1.02%) as you look to build a seven-figure nest egg.
What does Coca-Cola do?
Coca-Cola is one of the largest consumer staples companies on the planet, with a market capitalization of around $280 billion. The company’s namesake brand is iconic and well known in countries around the world, though it is really just one of the many beverage products Coca-Cola sells.
From a big-picture perspective, the products Coca-Cola produces are really luxury items. You could just drink free tap water instead of paying far more for a soda. However, the cost of a soda, or any of the other branded beverages the company sells, is modest. So, in effect, Coca-Cola is selling an affordable luxury that most people are loath to give up even during hard times, like recessions.
Thus, Coca-Cola’s business tends to be very resilient. That’s highlighted by its status as a Dividend King, with more than 60 years’ worth of annual dividend increases backing its roughly 3.1% dividend yield. Without getting into details, Coca-Cola stands toe to toe with any consumer staples company when it comes to the strength of its business.
It can be a reliable foundation for a diversified millionaire-making portfolio. It allows you to stack higher-growth, riskier investments on top of it without having to fear that you will lose it all by taking on too many risky bets.
Why buy Coca-Cola now?
Coca-Cola is a well-run company and it doesn’t go on sale very often. When it does get put on the discount rack, the sale is usually pretty modest. Don’t go into a valuation analysis here expecting to find a deep discount. But that doesn’t mean there is no discount.
For starters, Coca-Cola’s 3.1% dividend yield is quite attractive on a comparative basis. One vital reference point is the skinny 1.2% yield of the S&P 500 index. But the yield is also well above the 2.7% average yield for the consumer staples sector as a whole. On a relative basis, Coca-Cola’s dividend yield suggests it is trading at an attractive price for long-term investors.
That fact is backed up by more traditional valuation metrics. For example, Coca-Cola’s price-to-sales ratio is currently around 6.1 versus a five-year average of roughly 6.3. That’s not a huge discount, per se, but it is cheaper than normal. The price-to-earnings ratio shows the same trend, with the current figure at about 23.5 compared to a five-year average of nearly 27. A fair to slightly discounted price for a company like Coca-Cola is a pretty good long-term investment opportunity.
Build your million-dollar portfolio from the ground up
Coca-Cola isn’t likely to get you to millionaire status all by itself. And even if it did, the process would likely require decades to play out. However, you probably shouldn’t be buying a single stock and hoping to hit it rich. You should spread your bets out, with some more risky ones and some more conservative ones, like Coca-Cola.
Coca-Cola isn’t an exciting growth stock. Coca-Cola isn’t a dirt cheap turnaround story. It is a boring company that can be expected to grow slowly and steadily over time while spitting out a reliable and growing dividend. And that is the foundation on which you can build out a much more interesting millionaire-making portfolio.
