Analysis written by Vinay Soni
Coca-Cola needs little introduction. The company is a beverage giant selling in over 200 countries worldwide. The underlying reasons why are stated below but did you know that they have raised their dividend payout every year for the past 61 years! It's safe to say that they are a reliable dividend payer. This article will highlight some of the reasons why and why not one would invest in Coca-Cola.
The huge reputation and worldwide accessibility have allowed the company to diversify their revenue streams and rely less on a single market. Their global presence allows them to tap into new market opportunities better than other less-known brands. Furthermore, the company doesn’t just sell Coca-Cola, did you know they sell sports drinks and bottled water? This is to help them cater to different consumer preferences, diversify revenue, and reduce risk from fluctuations in soda popularity.
Coca-Cola differentiates itself from its competitors through its operating model. The group focuses on selling its syrup rather than the whole manufacturing process of creating and packaging. This allows Coca-Cola to consistently keep its costs low to help maintain its industry-leading gross margins (revenue – direct costs of manufacturing). These consistent margins of 60% make Coca-Cola attractive as they can easily weather economic downturns and have boosted their brand recognition.
Coca-Cola truly stands out through its strategic planning. Coca-Cola successfully aligns its values with its bottling partners by having a minority stake (a stake of between 10-50%) in them with the rest of the shares being owned by a single family that is focused on bottling rather than a collective. This ownership helps Coca-Cola as they only need to align their interests with one other party whilst legally influencing them through their minority stake. This collaborative ecosystem has several advantages for Coca-Cola; through aligned interests, Coca-Cola can encourage investment in infrastructure and market for sustained growth for both them and their single-family counterpart.
Equity research analysts at Hargreaves Lansdown predicted that revenue and operating profit (revenue – operating costs) were going to grow at mid-single digits in 2023 which it did at 6.3%. The consistent growth is a result of the reasons above.
However, Coca-Cola as a company isn’t just sunshine and rainbows! With growing health trends, Coca-Cola has come under fire due to the negative implications of sugar. The company has addressed this concern by reducing its sugar content and in recent years offering alternative products like Coke-zero however, this remains a negative stigma surrounding the company and causes their share price to be adversely affected by negative news. Furthermore, it can be assumed the company won’t offer the same potential for high growth as other companies because Coca-Cola's stock price may already reflect its strong fundamentals.
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