We recently compiled a list of the 7 Best Beverage Stocks that Pay Dividends. In this article, we are going to take a look at where The Coca-Cola Company (NYSE:KO) stands against the other beverage stocks.
Beverages Market
The food & beverage sector is experiencing significant growth, propelled by a movement towards sustainability and technological advancements. The ready-to-drink beverage market registered a 2% increase in volume in 2023 due to innovations in product mix. Moreover, as businesses adopt environmentally friendly practices and undergo digital transformation, the industry is set for continued development.
The Food and Beverages Global Market Report 2023 indicates that the market is expected to expand at a compound annual growth rate (CAGR) of 6.3% until 2027, underscoring a promising outlook for this vibrant industry.
Persistent inflation and rising interest rates in the recent past have led the industry to grapple with many challenges. This has affected consumer sentiment, driving them toward affordable store brands and quick-service restaurant options. Since 2023, companies have been tackling this situation by passing costs to the consumer; however, any further price increase is going to backfire now demand has become elastic.
Moreover, rising interest rates have also affected beverage makers. Their cost of capital and investment dynamics have been hindered, so companies are leveraging technological solutions, such as automation and data analytics, according to PNC Insights.
However, inflation has fallen to 2.5% in August, prompting improved consumer purchase patterns in packaged goods. According to PMI survey data reported by S&P Global Market Intelligence, global consumer spending growth demonstrated resilience in the second quarter of 2024, driven by an increase in demand for both goods and services. Moreover, the optimism in the strength of the U.S. economy increased to 41%, reflecting greater consumer willingness to spend.
Thus, in 2023, the spirits category maintained its leading position in the beverage sector, surpassing both beer and wine for the second year in a row. As reported in our previous article on best beverage dividend stocks to buy, the revenue increased by 0.2% for U.S. spirits, totaling $37.7 billion, according to the annual economic report from the Distilled Spirits Council of the US (DISCUS). Although this growth is modest, it represents a 0.4% advantage over beer and a significant 26.1% lead over wine sales. Moreover, pre-mixed cocktails emerged as the fastest-growing segment within the spirits category, experiencing a remarkable revenue increase of 26.7%, amounting to $2.8 billion.
Emerging Trends in the Beverage Industry
Like the shifting consumer purchase patterns in other industries, similar trends are also visible in the beverage sector. People are interested in fitness and health and look for nutritious products with lower sugar content. As such, research suggests that 77% of Americans are interested in lower sugar intake in their diets.
The global sugar-free beverage market is expected to reach $38 billion by 2032, exhibiting a CAGR of 7.32%. The main factor behind the demand for healthy beverages is the increase in obesity rates worldwide. Global obesity rates increased from 4.8% in 1990 to 14% in 2022. With the significant rise in overweight and obesity rates, there has been a corresponding increase in consumer interest in sugar-free products, thereby promoting a shift towards healthier alternatives within the food and beverage industry.
Moreover, customers are becoming increasingly concerned about the Corporate Social Responsibility (CSR) of companies when making purchase decisions. Research indicates that 87% of customers are likely to buy products from the companies that work on issues they care about.
Sustainability is becoming increasingly important in the packaging industry, just as it is in other sectors. Reusable packaging can help reduce CO2 emissions by 60%. Hence, this is why beverage brands are adopting this trend. Thus, global sustainable packaging was valued at $228 billion in 2019 and is expected to grow at a CAGR of 5.1% until 2027.
Methodology
To curate the list of best beverage stocks, we scanned Insider Monkey’s database of 912 hedge funds as of Q2 2024 and picked companies that are essentially engaged in the production and distribution of various liquid refreshments, including soft drinks, alcoholic beverages, coffee, tea, bottled water, energy drinks, fruit juices, sports and nutritional drinks, and dairy-based beverages. From that list, we chose seven companies that pay dividends to shareholders and ranked them in ascending order of the number of hedge funds having stakes in them as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A row of factory workers assembling bottles of sparkling soft drinks on a conveyor belt.
The Coca-Cola Company (NYSE:KO)
Number of Hedge Funds Holders: 68
The Coca-Cola Company (NYSE:KO) manufactures, markets, and sells various non-alcoholic beverages all over the world. The company operates in soft drinks, sparking water, value-added dairy, and plant-based beverages. It operates under the brand names of Coca-Cola, Fanta, FUZE TEA, Dasani, and several other brands.
In Q2 2024, The Coca-Cola Company (NYSE:KO) reported a 15% increase in organic revenues, driven by a 2% growth in unit case sales. Despite facing a 10% impact from currency fluctuations, it successfully reported a 7% surge in comparable earnings per share.
In the Asia-Pacific region, the company delivered a double-digit volume growth in the Philippines. It was mainly attributable to the focus on affordable packaging. Along with that, India also bounced back with the help of local brands such as Maaza.
In contrast, the North American delivered results in top-line and bottom-line products mainly supported by strategic partnerships and new product launches. In Latin America, the volume of Coca-Cola zero sugar increased by 20%. This reflects the solid execution across the beverage portfolio of the company. As a result, the share price has surged nearly 15% on a YTD basis.
However, the EMEA region registered a mixed response amidst geopolitical tensions. It faces a challenging situation in the region due to a boycott amidst the Israel-Palestine conflict.
Nevertheless, The Coca-Cola Company (NYSE:KO) raised the 2024 guidance, anticipating 9% to 10% organic revenue growth. Thus, 68 hedge funds have invested $31 billion in the company as of Q2 2024, as per Insider Monkey’s database. The company’s annual dividend amounts to $1.94 per share, yielding 2.73%, earning it a spot on our list of best beverage dividend stocks to buy.
Overall KO ranks 2nd on our list of the best beverage stocks that pay dividends. While we acknowledge the potential of KO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.