Why Not Buy These 2 Stable Stocks?
Ali is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As investors continue to stomach the big market swings, some are left wondering where one can put their money to safely earn a real return of capital, never-mind a return on capital. In times like these, recession-proof/consistent industries are justifiably more coveted and there are few industries that fit that bill better than food and beverage as people need to eat and drink regardless of their financial situation. I believe these two stocks below offer both great protection of the capital invested and potentially returns that outperform the market as they have shown superior operating performance and a solid management team.
There are very few companies on this planet more well-known than Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) and for two very good reasons: a stellar marketing team and more importantly, products that consumers genuinely want. In the case of KO, the company has by some estimates the most valuable brand name in the world, and why not being the company that introduced the current red suit, white beard Santa Claus back in 1931 (that’s a “Foolish” fact for all you Fools out there). In all seriousness though, Coca-Cola has very strong competitive advantages and barriers to entry as they have predominately exclusive agreements with distributors, significant economies of scale, a massive marketing budget, and diversified revenue base ranging of course from their ubiquitous, name sake soft-drink (full disclosure, this Fool doesn’t drink this as he’s trying to stay off the sugar) to Vitaminwater (that’s a little healthier), to the energy drink Rock Star and Minute Maid juice. Add in the fact that management has raised the dividend for 50 consecutive years now (yes, that’s 50 years straight through wars, economic calamities, market bubbles, etc.) and has value legend investment firm Berkshire Hathaway (NYSE: BRK-B) listed as its largest shareholder with approximately a 9% ownership stake and I think KO still makes for a nice long-term income holding.
PepsiCo is no slouch itself with a $67 billion revenue base (considerably greater than Coca-Cola’s $47 billion) and such popular products as its name-sake soft drink Pepsi along with Doritos, Aunt Jemina Syrup, Gatorade, and Frito-Lays. The company also enjoys many of the same benefits as Coca-Cola along with an even more diversified revenue base through their snack foods and Quaker food segment. The company has been great at giving back to shareholders as well raising the dividend for over 30 consecutive years and currently sports a 3.1% dividend, which is slightly higher than Coca-Cola’s 2.8% yield. Moreover, both of these high quality firms have a comparatively small 51% payout ratio giving me even more confidence that the dividends will not only continue into the foreseeable future, but continue to be raised. In addition, as literally billions in new customers come onto the market as the growing economies predominately in Brazil, Russia, China, and India bring more people out of poverty and into prosperity, these two companies should surely benefit. I think splitting a position between these two companies is prudent and should serve the long-term income investors well.
As always, respectful comments and questions are welcome below on the message board.
Prohomes has no positions in the stocks mentioned above. The Motley Fool owns shares of Berkshire Hathaway, The Coca-Cola Company, and PepsiCo. Motley Fool newsletter services recommend Berkshire Hathaway, PepsiCo, and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.