Here's What I Think Is Going On With Coca-Cola Stock

Coca-Cola (NYSE: KO) stock is a top pick for dividends, but it rarely beats the market. Historically, it tends to outperform when the market is down, since it's a classic "safe stock." But its low, steady growth and reliability are less prized in strong bull markets, and over time, it's an underperformer.

However, it's having a blowout 2026. Not only is the stock beating the market this year, up 22% versus 11% for the S&P 500, but it's also beating top growth stocks including Nvidia and Amazon. That's because its prized features matter today, too.

It's Warren Buffett's favorite

Warren Buffett has praised Coca-Cola many times as an example of a great business, and it was the stock he was talking about when he said his favorite holding period is "forever." The reasons he loves it so much are the reasons I think the market is also loving it right now.

Image source: Getty Images.

He loves Coke's place in the economy, its global brand that travels, and its relationship with fans, which is a moat that's not easily torn down. That's well illustrated by the famous business case of when it introduced New Coke based on taste tests, which was a thorough failure because it didn't take into account users' emotional connection to the classic formula. Coca-Cola won't be replaced by artificial intelligence (AI), and people will always need to drink.

He also loves its dividend. Coca-Cola is a Dividend King, which means that it has raised its dividend for at least 50 years consecutively, and it has one of the longest track records, having raised its dividend for the past 64 years straight. It tends to have a high yield, but since the stock is soaring, the yield is down to 2.5% at the current price.

Why it matters now

These are features that fortify it under adverse circumstances, which is why it's considered safe. And that's why investors are likely buying it today.

Despite what it might look like from the thriving market, the economy is in a challenging place. Inflation is still raging, and steady interest rates might eventually put a dent in the economy. The ceasefire with Iran seems to be over, and oil prices are already heading higher again.

Despite all of that, the S&P 500 keeps climbing higher. There are two major streams of thought about why: Either investors are having a break with reality, or there's immense confidence in AI being reality.

Either way, Coca-Cola stock provides the security investors need when there's volatility. It's demonstrating healthy growth despite economic headwinds, and the company has a long growth runway as it continues to make inroads into developing regions. And it can continue to do so in the age of AI, using AI to its advantage to identify specific opportunities and act on them. That makes it a fantastic component of a defensive portfolio.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.