We recently compiled a list of the 10 Best Blue Chip Dividend Stocks To Buy. In this article, we are going to take a look at where The Coca-Cola Company (NYSE:KO) stands against the other blue chip dividend stocks.
When it comes to investing in stocks, investors often keep a close eye on the company’s financial health. Why? Because it directly impacts the potential returns on their investments. This is especially crucial for income investors, as solid financial health ensures regular dividend payments and steady dividend growth. In short, a company’s strong financial footing means it’s more likely to keep the cash flowing and the dividends climbing. Blue chip companies, especially those with over $100 billion in market cap, take the lead in this area. These firms are well-established, financially stable, and top players in their industries.
The Dow Jones Industrial Average is commonly regarded as an index of blue chip stocks. This widely watched stock market index includes 30 of the largest and most established publicly traded companies in the US. The index surged by over 4.7% since the start of 2024 and in the past 12 months, it gained 16.4%.
When comparing the performance of the broader market and the Dow Jones, both of which track large-cap U.S. companies, historical data reveals a high correlation between the two indices over time. However, there have been notable instances where their performances diverged significantly. According to a report from S&P Dow Jones Indices, the market substantially outperformed the Dow Jones over one- and three-year periods. Conversely, over the 30-year period leading up to 2019, the Dow Jones slightly outperformed the broader market. This indicates that although these indices often move together, short-term performance can vary, and specific market conditions and economic factors can influence which index performs better during different periods. The Dow Jones underperformed the broader market in 2023 by a wide margin.
While analysts frequently compare the performance of these two indices, it is important to note that the Dow represents only a small segment of the economy. In contrast, the broader market includes nearly 17 times as many companies. According to estimates from S&P Dow Jones Indices, more than $11.2 trillion investments were benchmarked to the broader market at the end of 2019. This is a staggering 350 times greater than the $32 billion benchmarked to the Dow. A key reason for the broader market’s outperformance compared to the Dow last year is that the market places more emphasis on the tech giants, which were the primary drivers of the wider market’s gains throughout the year.
Returning to the importance of blue chip companies, investors favor these firms because their strong financial health allows them to grow their dividends consistently. Dividend growth has remained a strong preference of investors over the years, prompting companies to increase their dividend payouts steadily. In this article, we will take a look at some of the best blue-chip dividend stocks.
Our Methodology:
For this list, we began by examining the current members of the Dow 30 that boasted a minimum market capitalization of $100 billion as of July 7. From this initial group, we specifically focused on companies that consistently pay dividends to their shareholders and have yields of at least 2%, as of July 7. These stocks were then ranked in ascending order of the number of hedge funds having stakes in them at the end of Q1 2024, as per Insider Monkey’s database. 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 Fund Holders: 62
An American multinational beverage company, The Coca-Cola Company (NYSE:KO) ranks eighth on our list of the best dividend stocks. On May 2, the company declared a quarterly dividend of $0.485 per share, which was in line with its previous dividend. Overall, it holds a 62-year streak of consistent dividend growth. The stock supports an impressive dividend yield of 3.04%, as of July 7.
Regardless of how successful or unique a company may be, maintaining a balanced portfolio often requires strategic acquisitions. The Coca-Cola Company (NYSE:KO), recognizing shifting consumer preferences away from sugary sodas, has been heavily investing in diversifying its product offerings. Over the past decade, through several acquisitions, the company managed to boost its revenue, which had been somewhat declining significantly. The company grew its net sales from $33 billion in 2020 to $46 billion in 2023. In the first quarter of 2024, it reported revenue of $11.2 billion, which showed a 3% growth from the same period last year.
For income investors, cash flow is the bedrock of any company. The health of cash flow determines whether the company can continue to pay or uphold its dividends. In the most recent quarter, The Coca-Cola Company (NYSE:KO) reported strong cash position. Its operating cash flow came in at $528 million, showing an increase of $368 million from the prior year period. The company’s free cash flow also showed an increase of $274 million at $158 million. It expects a strong cash position for the year ahead, projecting to distribute around $84 billion in dividends for 2024, supported by an estimated $9.2 billion in free cash flow. However, after accounting for these cash outflows, there isn’t much remaining for the company to use towards reducing its $43.7 billion in total debt. In addition, its debt-to-equity ratio of 1.56 is considered somewhat elevated.
The Coca-Cola Company (NYSE:KO) was a part of 62 hedge fund portfolios at the end of Q1 2024, which remained the same as in the previous quarter, according to Insider Monkey’s database. The stakes held by these hedge funds have a collective value of over $28.5 billion. Among these hedge funds, Berkshire Hathaway owned 400 million KO shares, becoming the company’s leading stakeholder.
Overall KO ranks 8th on our list of the best blue chip dividend stocks to buy. You can visit 10 Best Blue Chip Dividend Stocks To Buy to see the other blue chip dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of KO as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than KO but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.