Coca-Cola (NYSE:KO) is the world’s largest soft drink maker and it has one of the most recognizable brands of any company in any industry, but KO stock lacks sizzle and it has for some time.
Undoubtedly, there was a time when Coca-Cola was a cornerstone of many Americans’ portfolios. Should today’s younger investors discuss KO stock with their grandparents, they’re likely to come away thinking the member of the Dow Jones Industrial Average is a must-own.
Alas, it’s not. In fact, the 21st century represents two decades of disappointment for Coca-Cola investors. From the first trading day of the year 2000 through Aug. 1, 2020, shares of Coca-Cola are higher by just over 68%, less than half the 154.26% returned by the Dow over the same period.
Making that laggard status all the worse is that Pepsico (NASDAQ:PEP), the stock Coca-Cola is most frequently compared, has more than quadrupled since Jan. 1, 2000.
In this era of rampant day trading and growth stocks delivering big gains in short order, measuring performance over two decades-plus may not seem relevant, but with consumer staples stocks like Coke and Pepsi, long-term measurement is relevant because investors prize these names for steadiness and typically hold these equities for lengthy periods of time.
New Products and KO Stock
There are a couple of reasons why investors get fooled into Coca-Cola over Pepsico. First, there’s Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) owning a massive chunk of KO stock – one that the conglomerate has held for decades. Buffett is a great pitchman for the stock because he’s frequently photographed sipping cans of Coke.
Plus, Berkshire has owned the stock for so long and made so much money on it, that Buffett’s feet are never held to the fire regarding the past two decades of disappointment by this name. Second, unknowing investors assume that because Coca-Cola Classic and Diet Coke are the two best-selling sodas in the world that this stock is “better” than Pepsico. Obviously, price action says otherwise.
What Coca-Cola has a history of moving slowly into growth areas of food and beverage. Pepsico beat its rival to the punch in sports drinks and teas, to name just two, and Coca-Cola never developed a snack business to come anywhere close to rivaling Pepsi’s Frito Lay unit.
More recently, Coca-Cola affirmed its slow-moving ways, saying it plans to launch a hard seltzer line under its Topo Chico brand in Latin America later this year and in the U.S. in 2021. This isn’t a case of better late than never.
Yes, hard seltzer is a growing category in the beverage space, but it’s no longer kitschy. This is a segment that’s attracted big players with the resources to ward off Coca-Cola competition.
Boston Beer (NYSE:SAM), Constellation Brands (NYSE:STZ) and Molson Coors Brewing (NYSE:TAP), just to name a few, are among the companies Coca-Cola will have to tussle with in the seltzer arena and because those firms have been in the space awhile, it becomes harder for new entrants to pilfer business.
Coke Stock Isn’t the Staples Name to Buy
One thing investors can bank on with Coca-Cola is dividend growth. The company’s payout increase streak reached 58 straight years with a modest hike in February. The stock now yields 3.40%, which is exceptional in the current environment.
However, above-average yields and reliable dividend growth are accessible throughout the staples sector. For example, Pepsi’s dividend increase is measured in decades, too. That is to say investors should not buy Coca-Cola simply for the dividend because they’ll be left disappointed.
This year proves as much. The S&P 500 Consumer Staples Index is higher by 2.45% year-to-date while KO stock is lower by almost 13%.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.