A great company can overcome any economic challenge. To be a great company, it’s necessary to have pricing power. That means avoiding having to cut prices during a slow period. And it means when inflation is running hot, prices can be raised over and above.
Such companies are few and far between. But harnessing the power of a brand during a slow or sideways market can help lead to great returns over time, both from capital gains, and from growing dividend income.
It’s no surprise that Coca-Cola (KO) has been able to hike prices on consumers yet again. That helped the company’s earnings rise 5 percent year-over-year, beating expectations by 3 cents.
While shares have been flat over the past year, improved earnings have taken the beverage brand giant from 28 times earnings to 24 times forward earnings. The company’s annual dividend payout was likewise bumped up by about 4.5 percent over the past year also.
Action to take: Shares aren’t exceptionally cheap. But for one of the world’s leading brands, with pricing power to keep up with inflation, they’re in a good spot relative to where shares have been valued at times in the past.
Investors can start with a 2.8 percent dividend now, and let it compound over time.
For traders, shares are likely to continue to trend higher. The August $65 calls, last going for about $1.75, could see mid-double-digit gains on a further rally in the next four months.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.