The technology sell-off has been making headlines of late, as it should. After all, the Nasdaq Composite has slumped 32% year to date, thanks to a broad range of macroeconomic headwinds like soaring inflation and increased borrowing costs.
Not all companies have been adversely affected by today’s economic climate, however. Even as investors have cast aside the technology sector for now, they have transitioned to safer, high-dividend value stocks. This shift has benefited many of the stocks in the great Warren Buffett’s investment portfolio. Buffett, who is famous for his value investing strategy, typically favors companies with cheap valuations, robust dividend yields, and wide economic moats.
Given today’s insecure economic environment, it wouldn’t be unwise to consider following Buffett’s lead. Let’s examine one of Warren Buffett’s all-time favorite stocks and why investors may want to purchase shares today.
You can always count on Coca-Cola
Anyone familiar with Warren Buffett knows about his investment in Coca-Cola (KO 0.61%). Today, the world-class beverage company is really showcasing why the Oracle of Omaha loves the stock. While the company’s share price is only up roughly 1% year to date, that’s far better than the S&P 500, which has contracted 23% in the same period. Its resilient business model, combined with its top-flight brand and handsome dividend, make this stock a no-brainer at the moment.
In its first quarter of 2022, the beverage juggernaut grew revenues by 16.3% year over year, and diluted earnings per share surged 23.1% to $0.64. The company’s GAAP operating margin also expanded 228 basis points to end at 32.5%. Unlike many companies around the world, demand for Coca-Cola’s products in Q1 remained intact. This is typically the case for consumer staples stocks as they are primarily unaffected by macro headwinds like high inflation and rising interest rates.
For fiscal year 2022, analysts project total sales will increase 8.3% year over year to $41.9 billion and earnings per share will rise 6.5% to $2.47. While these are fine growth rates, the real reason to invest in Coca-Cola is for its cash generation and lucrative dividend. The company’s business consistently generates cash, producing $10.2 billion in free cash flow (FCF) in the past 12 months.
This level of operational success has enabled the company to increase its dividend for 60 consecutive years. Today, the beverage leader pays out $0.44 per share each quarter, translating to a 2.98% yield. And given its durable business and proven track record, it’s more than reasonable for investors to expect dividend hikes in the future.
Perfect timing to buy the stock
I like the look of Coca-Cola today — this is a stock that you can comfortably own forever. That said, now is particularly good timing to buy shares, given ongoing macro conditions and fears of a potential recession. The beauty of this stock is that it’ll pay you to own it. Whether or not the share price goes up, investors can expect a nice quarterly dividend payment. If you’re concerned about the future economy, Coca-Cola is a perfect play at the moment.