Analyst Explains Why He’s Buying This ‘Nice, Boring’ Dividend Stock With 3% Yield

Amid tariff-related uncertainties and weakening consumer sentiment, investors are turning to safe and reliable dividend stocks. Kevin Simpson, Capital Wealth Planning founder and CIO, recently talked on CNBC about why he’s bullish on The Coca-Cola Company (NYSE:KO).

“We’re going old school. Give me a 13 multiple in this world, a 3% dividend, and 53 years of rising dividends—that’s something we love. We’re getting about a 3% yield, and they’re raising it about 5% each year. Pepsi isn’t even in the top three sodas anymore, which I found fascinating. Coke, on the other hand, has Coke, Coke Zero, and Diet Coke—appealing to three different palates. They’re also tapping into the younger generation with healthier sodas, drinks, and sports beverages. We like it. It’s a nice, boring name for us.”

Image by Steve Buissinne from Pixabay

Hayden Capital made the following comment about The Coca-Cola Company (NYSE:KO) in its third 2023 investor letter:

“It’s not just emerging markets either, where one could argue a “scarcity premium” given fewer quality public companies. Even in the US, The Coca-Cola Company (NYSE:KO) trades at ~30x P/E despite having the same earnings as 10 years ago.

Both of these companies actually have lower revenues than 10 – 15 years ago too, indicating that their profit growth is mostly from margin expansion. This can only last for so long before there’s no more excess expenses left to cut.

I find it ironic that all these companies trade as “bond-equivalents” in the minds of investors – even commanding lower yields than US treasuries, the safest security in the world. But it’s clear that their businesses are not nearly as safe. Coca-Cola is facing disruption risk from consumers shifting to new, heathier beverage brands.

But these companies are ~35% more expensive than US Treasuries, despite the heightened risk. On a risk-adjusted basis, one could argue the implied premium is even higher.”

Perhaps the explanation is simply the price volatility difference between these stocks and treasuries over the last two years. For example, 10-year Treasury bonds are down ~-20% since the beginning of 2022. By comparison, KO and PG are remarkably down only -4 – 6% over that time frame.”

While we acknowledge the potential of KO, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk.  If you are looking for an AI stock that is more promising than KO and that has 100x upside potential, check out our report about this cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.