Coca-Cola (NYSE: KO) and Altria (NYSE: MO) are each basic client staples performs for revenue buyers. Coca-Cola is without doubt one of the largest beverage firms on the planet, and Altria owns Marlboro, the top-selling cigarette model in America. Each of those shares would possibly appear to be stable long-term investments.
However over the previous 10 years, Coca-Cola inventory has gained 64% whereas Altria inventory rose simply 8%. On a total-return foundation that features reinvested dividends, the hole narrows: Coca-Cola generated a complete return of 125% whereas Altria delivered a complete return of 103%. However which is the higher all-around inventory for conservative buyers from right here?
Coca-Cola’s enterprise continues to be glowing
Gross sales of Coca-Cola’s carbonated drinks have slowed over the previous few many years as soda consumption charges declined internationally. However to counter that pattern, the corporate expanded its portfolio with extra manufacturers of fruit juices, teas, bottled water, power drinks, espresso, and even alcoholic drinks. It additionally refreshed its flagship sodas with new flavors, smaller serving sizes, and more healthy variations to draw youthful shoppers.
Coca-Cola’s natural gross sales declined by 9% in 2020 as eating places and different dine-in companies shut down throughout the pandemic. That slowdown throughout the meals service sector offset its stronger gross sales in supermarkets and different retailers. However after these tailwinds dissipated, natural gross sales elevated by 16% in each 2021 and 2022.
In 2023, the corporate’s natural gross sales had been up by one other 13%, an increase powered partially by its value hikes throughout the 2022-2023 interval of upper inflation. In 2024, it expects that metric to rise by an extra 9% to 10% and for its comparable EPS to develop by 5% to six%. At $70, Coca-Cola’s inventory nonetheless appears fairly valued at 25 instances the midpoint of this yr’s earnings outlook, and pays a wholesome forward dividend yield of two.8%. Coca-Cola can be a Dividend King, with a streak of 62 consecutive years of payout hikes.
Altria’s core enterprise goes up in smoke
Altria spun off its worldwide enterprise as Philip Morris Worldwide in 2008. After that, Altria generated most of its income from the U.S. market, the place it struggled with declining smoking charges and market share losses.
From 2018 to 2023, Altria’s annual cigarette shipments dropped from 109.8 billion sticks to 76.3 billion sticks as Marlboro’s retail market share shrank from 43.1% to 42.1%. (The Marlboro model, in flip, accounts for about 90% of Altria’s cigarette gross sales quantity.) In response to these shrinking volumes, Altria repeatedly raised its costs per pack, lowered its spending, and purchased again shares to squeeze extra EPS development out of its stagnant revenues.
Altria additionally steadily diversified its enterprise away from cigarettes with smoke-free merchandise like snus, heated tobacco, e-vapor, and e-cigarette merchandise, however it nonetheless generated 87% of its income from cigarettes and cigars in 2023. The corporate’s finest hope is to maintain increasing its portfolio of non-smokeable merchandise by means of acquisitions to cut back its dependence on its shrinking cigarette enterprise, however that technique most likely will not halt its long-term decline.
For 2024, analysts count on Altria’s income to say no by 1% as its adjusted EPS rises simply 3%. From some views, its inventory could possibly be seen as low-cost at 10 instances ahead earnings, and it nonetheless affords a powerful ahead dividend yield of 8.2%. Nonetheless, with its anemic development and long-term challenges, it could possibly be a high-yield lure.
The higher purchase: Coca-Cola
Coca-Cola operates an evergreen enterprise, however Altria is operating out of steam, and it will not be capable of preserve elevating its costs and reducing prices indefinitely to offset the impression of its shrinking gross sales quantity. That distinction might assist illustrate why Warren Buffett’s Berkshire Hathaway nonetheless holds Coca-Cola as certainly one of its prime holdings, however would not personal a single share of Altria.
Altria will not go bankrupt anytime quickly, however it might proceed to underperform Coca-Cola, different blue chip client staples shares, and the broader market. Its low valuation and excessive yield ought to restrict its draw back potential, however buyers should not put an excessive amount of religion in its means to aggressively increase its smokeless portfolio to offset declining cigarette shipments.
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Leo Sun has positions in Berkshire Hathaway. The Motley Idiot has positions in and recommends Berkshire Hathaway. The Motley Idiot recommends Philip Morris Worldwide. The Motley Idiot has a disclosure policy.
Best Stock to Buy Right Now: Coca-Cola vs. Altria was initially printed by The Motley Idiot
