Want Income for Life? Coca-Cola Has Raised Its Dividend for 64 Straight Years and Yields 2.5%. Here's Whether It Belongs in Your Portfolio.

Coca-Cola (NYSE: KO), the world's largest beverage maker, is a classic dividend stock. It's raised its dividend annually for 64 straight years, making it a Dividend King that has maintained that streak for at least five decades. It pays a respectable forward yield of 2.5%.

But with the 10-Year Treasury yield at 5.3%, does it still make sense to invest in Coca-Cola's riskier, lower-yielding stock? Let's review its strengths and weaknesses to decide.

Image source: Coca-Cola.

What are Coca-Cola's strengths?

Over the past few decades, Coca-Cola has diversified its portfolio to include more bottled water, teas, fruit juices, sports drinks, energy drinks, coffee, and even alcoholic beverages. It also refreshed its flagship sodas with new flavors, healthier versions, and smaller serving sizes.

Coca-Cola's expansion and diversification insulated it from the global slowdown in soda consumption. It also maintained an asset-light business model by only selling its syrups and concentrates to independent bottlers, which produced and distributed the finished drinks.

That's why Coca-Cola generates higher gross margins than PepsiCo (NASDAQ: PEP), which bottles its own drinks and sells lower-margin packaged foods. Coca-Cola's streamlined business model is also better insulated from raw cost inflation and higher labor costs than PepsiCo.

That's also how Coca-Cola generates plenty of cash to cover its dividends. Over the past 12 months, it spent just 77% of its free cash flow (FCF) and 62% of its earnings per share (EPS) on its dividends. From 2025 to 2028, analysts expect its EPS to grow at a steady 7% CAGR. That growth should be driven by the expansion of its newer dairy, energy, and sugar-free drinks; the consolidation of its bottling network; and its AI-powered inventory optimization strategies.

What are Coca-Cola's weaknesses?

Over the past 12 months, Coca-Cola's stock has rallied more than 30%. Those gains were partly driven by the broader flight to safe-haven blue chip stocks.

But at $86 per share, Coca-Cola doesn't look cheap at 26 times this year's earnings. It also pays less than half the yield of the 10-Year Treasury, long-term CDs, and other fixed income investments. Therefore, its upside potential could be limited in this challenging market.

Coca-Cola also doesn't consistently beat the S&P 500 (SNPINDEX: ^GSPC). Over the past 10 years, Coca-Cola delivered a total return of 182% with reinvested dividends, underperforming the S&P 500's total return of 326%. Over the past 20 years, Coca-Cola's total return of 606% still trailed the S&P 500's total return of 739%. For long-term investors, it might be smarter to simply invest in Vanguard's S&P 500 ETF (NYSEMKT: VOO) instead of Coca-Cola.

Coca-Cola's business is built to withstand recessions, but tighter regulations on sugary drinks (such as "soda taxes") and on plastic packaging could drive its bottling partners to raise prices. Those price hikes could cap its sales and erode its defenses against cheaper competitors. New GLP-1 drugs and more health-conscious consumers could also create fiercer headwinds for its carbonated drinks, forcing Coca-Cola to aggressively invest in healthier beverages.

Is it the right time to buy Coca-Cola?

I own some shares of Coca-Cola, which account for 4.4% of my portfolio. I like the stock as a defensive long-term investment, but I wouldn't add more shares in this messy market. Coca-Cola's valuations were inflated by the buying spree in defensive stocks in response to rising inflation and the Iran war. But after the Fed raised its benchmark rates for the first time in three years in September, T-bills and CDs have become better places to park your cash.

Therefore, the market could revalue Coca-Cola at a lower multiple as more investors realize the stock isn't cheap and yields less than the 10-Year Treasury. That's why I'm reluctant to recommend Coca-Cola unless its stock pulls back or it significantly raises its dividend.

Leo Sun has positions in Coca-Cola. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.