We recently published a list of 8 Best Beverage Dividend Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where The Coca-Cola Company (NYSE:KO) stands against best beverage stocks that pay dividends.
Retail sales rebounded significantly in October as the economy remained stable and consumers overcame worries about a port strike and other challenges that had dampened sales in September, according to the CNBC/NRF Retail Monitor. NRF President and CEO Matthew Shay noted that consumer spending picked up again in October, supported by job growth and increased wages throughout the year. He observed that inflation remained largely confined to services, with prices for some retail goods even declining. Shay indicated that October’s sales performance had laid a solid foundation for the holiday shopping season to begin on a positive note. When we examine specific sectors, we see that grocery and beverage stores experienced a 0.87% increase on a seasonally adjusted month-over-month basis and a 3.76% rise year-over-year without seasonal adjustments.
The food and beverage industry faced significant challenges during the pandemic. While in-home consumption surged, out-of-home dining virtually ceased, leading to a substantial decline in business and severely impacting the sector. Since then, the industry has undergone numerous transformations and is now in a recovery phase. According to a Market Research report, the global food and beverages market is projected to grow at a compound annual growth rate (CAGR) of 5.9% between 2022 and 2027. The market’s growth is being driven by shifting consumer habits, out-of-town retail parks, and retail stores.
READ ALSO: 7 Best Beverage Stocks that Pay Dividends
Coffee remains the most popular beverage among Americans. In 2023, spending on out-of-home cold coffee, such as iced coffee, cold brew, and frozen coffee drinks, reached $17.7 billion—more than double the $8.5 billion spent in 2016, according to the food service research firm Technomic. Additionally, the National Coffee Association (NCA) reported that coffee consumption outside the home has returned to pre-pandemic levels as people resume visiting coffee shops and workplaces. Over a third of consumers who drank coffee on a given day did so away from home, marking the highest rate since January 2020, as highlighted in the NCA’s National Coffee Data Trends report.
Consumer behavior plays a critical role in shaping any industry, and the beverage sector is no exception. This industry is adapting to evolving preferences, with more Americans seeking alternatives to alcohol. Beverage companies emphasizing the health benefits of their products are striving to tap into this trend. According to data insights firm NCSolutions, over 40% of Americans aim to reduce their alcohol consumption in 2024, an increase from 34% the previous year. Among Generation Z, this figure rises to 61%, compared to 40% in 2023 who expressed similar intentions.
Technology stocks have been the standout performers this year, with gains of nearly 29%. While food and beverage stocks haven’t seen exceptional growth, the Food & Beverage index, which represents companies across various sub-industries in the sector, has still delivered a modest year-to-date return of 7.5%. Over the past 12 months, the index has risen by approximately 14%.
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Our Methodology
To select the best beverage stocks, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 and picked companies that are primarily involved in the production and distribution of a wide variety of 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 selected 10 companies that pay dividends to shareholders and ranked them in ascending order of the number of hedge funds having stakes in them as of Q3 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).
The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 69
Warren Buffett’s favorite, The Coca-Cola Company (NYSE:KO) ranks second on our list of the best beverage stocks that pay dividends. The American multinational beverage company is well-known to consumers, offering a diverse range of drink brands and maintaining a global presence. The company’s greatest competitive advantage is its strong brand, which creates an economic moat, helping it stand out from competitors in the industry. In addition to its long history of providing a consistent product, it has developed exceptional marketing expertise, ensuring the brand remains prominent and top-of-mind for consumers. The stock has delivered a nearly 7% return to shareholders since the start of 2024.
The Coca-Cola Company (NYSE:KO) generated nearly $12 billion in revenues in the third quarter of 2024, which beat analysts’ consensus by $290 million. The company’s cash performance was also strong as it generated $2.9 billion in operating cash flow during the quarter and its free cash flow came in at $1.6 billion. Its adjusted operating margin reached an impressive 30.7% in Q3, reflecting a highly profitable business model.
This consistent profitability has directly benefited shareholders, as The Coca-Cola Company (NYSE:KO) has increased its dividend for an astounding 62 consecutive years. It’s rare for investors to find companies with such an exceptional history of returning excess profits to shareholders. The company offers a quarterly dividend of $0.485 per share and has a dividend yield of 3.04%, as recorded on November 24.
At the end of the third quarter of 2024, 69 hedge funds in Insider Monkey’s database owned stakes in The Coca-Cola Company (NYSE:KO), up from 68 in the previous quarter. These stakes are valued at nearly $35 billion in total. With 400 million shares, Warren Buffett’s Berkshire Hathaway owned the largest stake in the company.
Overall, KO ranks 2nd on our list of best beverage dividend stocks to buy according to hedge funds. While we acknowledge the potential for KO to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. 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.