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If You Invest $5,000 In Coca-cola Stock, Will You Become A Millionaire One Day?
There's no doubt that most people on the face of the planet have heard of or been a customer of Coca-Cola (NYSE: KO). The company that offers its namesake drink, as well as more than 200 others, has a presence in a jaw-dropping 200 countries and territories. It's so popular that 1.9 billion servings of Coca-Cola products are consumed every 24 hours.
The business has steadily built wealth for shareholders over many decades. But if you invest $5,000 in this leading beverage stock right now, will you become a millionaire one day?
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Top qualities
Coca-Cola's brand is arguably its most valuable asset. There are numerous non-alcoholic ready-to-drink beverages that people can choose from. But this one has stood the test of time, thanks not only to its consistent offering, but its marketing prowess, which has resonated strongly with people.
This supports the company's pricing power. Asking customers to pay 5% more for their favorite drink probably won't result in changing consumption patterns.
And given that these are small, repeat purchases, Coca-Cola benefits from durable demand. In other words, sales aren't that affected by the whims of the broader economic backdrop. That can't be said about a lot of companies out there, where higher interest rates or unemployment could spark financial turmoil.
These attractive characteristics have resulted in tremendous profitability for the business. Coca-Cola usually turns 21% of every dollar of revenue into free cash flow. That bottom-line performance has allowed the company to raise its dividend for 62 straight years, with 2025 likely adding another year to that phenomenal streak.
Where's the growth?
Coca-Cola is a very mature enterprise. It doesn't operate at the cutting edge of some powerful secular trend, like streaming entertainment, cloud computing, or digital payments, for example. Its business is boring, since not a lot of things are changing.
That's discouraging for growth-minded investors. Coca-Cola's 2023 revenue of $45.8 billion was just 118% higher than exactly 20 years before. This translates to a weak 4% compound annual growth rate. That's definitely not turning any heads among the investment community.
As I noted above, Cola-Cola is already ubiquitous. Yes, management can acquire other brands, like it did with Costa in 2018, to expand its portfolio. But unless there's a surprising jump in the global population, the company's revenue growth isn't going to outpace the increase in world gross domestic product. It also doesn't help that consumption of soft drinks per person in the U.S. is trending lower. That backdrop doesn't bode well for Coca-Cola's ability to expand at a notable clip.
For dividend lovers
Coca-Cola is a household name with one of the world's most recognizable brands. What's more, the business remains a top Warren Buffett stock, with Berkshire Hathaway owning 9.3% of the outstanding shares. That's certainly a vote of confidence highlighting the company's quality.
But if you're looking to buy the stock, it's important to understand the track record. In the past three decades, Coca-Cola has generated a total return of 905%. For comparison's sake, the S&P 500 produced a total return of 2,150% during that time.
When you consider the muted growth prospects mentioned earlier, it's reasonable to expect this underperformance to continue indefinitely. The current price-to-earnings ratio of 26.5, which is in line with the trailing five-year average, also doesn't add upside.
Let's say you invest $5,000 in the stock today. In order for you to become a millionaire in 50 years, shares would need to generate a total return of 19,900%, translating to an annualized gain of 11.2%. I just don't see this as a probable outcome.
Therefore, I think Coca-Cola only makes sense for dividend investors who desire receiving a steady stream of income from the businesses that they own.
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
