With the broad market in the red, it is not surprising to see high interest in traditionally defensive sectors.
While not as fancy or exciting as many hyped growth stocks, companies like The Coca-Cola Company ( NYSE: KO ) have been steadily delivering value to their shareholders.
View our latest analysis for Coca-Cola
Full-year 2021 results:
- EPS: US$2.26 (up from US$1.80 in FY 2020).
- Revenue: US$38.7b (up 17% from FY 2020).
- Net income: US$9.77b (up 26% from FY 2020).
- Profit margin: 25% (up from 24% in FY 2020). The increase in margin was driven by higher revenue.
Revenue exceeded analyst estimates by 1.6%. Earnings per share (EPS) also surpassed analyst estimates by 5.8%.
Over the next year, revenue is forecast to grow 8.4%, compared to a 6.5% growth forecast for the industry in the US. Over the last 3 years, on average, earnings per share have increased by 7% per year, whereas the company's share price has risen by 10% per year.
- Organic revenues up 9%
- Hydration, sports, coffee, and tea products up 12%
- Operating margin down to 17.7% from 27.2% due to increase in marketing expenses
Reflecting on the results, CEO James Quincey expressed his satisfaction about beating the metrics across the board compared to 2019. He remained confident about the company's position to face the latest challenges, including labor shortages, supply chain bottlenecks, and inflationary pressures.
What are Coca-Cola's Returns?
Over half a decade, Coca-Cola managed to grow its earnings per share at 8.4% a year.So the EPS growth rate is relatively close to the annualized share price gain of 8% per year.Therefore one could conclude that sentiment towards the shares hasn't morphed very much.Indeed, it would appear the share price is reacting to the EPS.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Coca-Cola has improved its bottom line lately, but will it grow revenue? This free report showing analyst revenue forecasts should help you determine if the EPS growth can be sustained.
Dividend Hike on the Menu
The company is expected to announce the 60th consecutive dividend increase this week, as it historically tends to announce it on the third Thursday of February. With the current payout ratio of 74%, the company has some leeway to increase the dividend, but we don't expect it to go crazy.
Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off.It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend.As it happens, Coca-Cola's TSR for the last 5 years was 72%, which exceeds the share price return mentioned earlier.This is primarily a result of its dividend payments.
A Different Perspective
Coca-Cola has rewarded shareholders with a total shareholder return of 23% in the last twelve months, including the dividend. That gain is better than the annual TSR over five years, which is 11%. Therefore it seems like sentiment around the company has been positive lately.
While the stock trades at a historically elevated P/E of 27, a reliable dividend and defensive positioning make it an attractive candidate to preserve the capital during turbulent times.
Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time.While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 1 warning sign for Coca-Cola that you should be aware of.
If you're looking for new investment candidates, take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on US exchanges.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.