One of the messiest stories on Wall Street this year is the Walt Disney Co. (DIS). And considering the problems elsewhere on Wall Street, that’s saying something!
Disney suspended its dividend a little more than a year ago. Then, more recently, it ousted its CEO Bob Chapek in November. The surprise move came just months after the beleaguered CEO had hired outside consulting firm McKinsey to try and slash spending and restructure operations, a sure sign that company was adrift. The stock has been in a tailspin all year as a result, and is currently down almost 40% since January 1.
The lesson for investors should be clear: Management matters, even at a company with a brand as big as Disney.
Most investors “buy what they know,” to paraphrase the legendary Peter Lynch. As consumers we have favorites we’re unswervingly loyal to – our favorite restaurant, or preferred drug store, our go-to coffee brand. But at the end of the day, all the name recognition in the world doesn’t matter if the executive team isn’t a good steward of that brand.
Just ask Disney’s recently fired CEO, or its shareholders who are now deep in the hole as a result.
Many leading dividend stocks are familiar names. And there is certainly power in being the most recognizable company in your space. But if you’re serious about long-term income, you have to look past the “soft” strengths like brand and market share and take a hard look at fundamentals like sales growth and profitability.
Coca-Cola: A Soft Drink with Hard Numbers to Back It Up
One of my favorite dividend stocks right now that backs up its soft brand power with hard numbers is The Coca-Cola Co. (KO). There are few brands with a more recognizable name or product on the planet, and as a result few companies that can match its stability and staying power.
The company was founded in 1886, and has products in more than 200 countries worldwide. It has raised its dividend in each of the last 60 years, and boasts $43 billion in revenue to make it #67 on the Forbes list of top U.S. companies.
And to top it all off, iconic investor Warren Buffett has been a long time believer in Coke. His Berkshire-Hathaway Inc. (BRK.B) owns more than 9.2% of outstanding shares to provide a strong floor for shares thanks to institutional demand.
All of that’s great. And many longtime income investors may already know some of this. But as the old saying goes, past performance is no guarantee of future returns. So what has Coca-Cola been doing lately?
Here are a few highlights:
Shares are up 7% on the year as I write, making it one of the rare stocks in the green on a year when more than 300 of the stocks in the S&P 500 have lost ground.
Coke has posted double-digit sales growth for the past six straight quarters. In Q3 it even managed to grow earnings per share by an impressive 14% despite the tough operating environment that has squeezed margins elsewhere.
And looking forward, the company is forging ahead with a restructuring of its North American workforce that includes voluntary buyouts to stay lean going forward.
With strong fundamentals and a strong outlook, this is the kind of big-name income investment that you can depend on for the long haul. The current yield doesn’t burn down the house at 2.7% or so at present, but the potential for continued success down the road makes this stock worth a look.
Balancing a Big Brand with a Bright Future
As Disney’s troubles in 2022 show, what worked in the market a few years ago simply doesn’t cut it anymore. From the pandemic to the war in Ukraine to the record-setting pace of interest rate changes, that should be clear.
So it’s time to throw out the old playbook, and start thinking like a contrarian.
This doesn’t mean that all the previous winners are doomed for failure. Coca-Cola proves that, as do others. But the key is to think objectively about what’s next, rather than relying on the rules of the past.
Our analysis at Contrarian Outlook prioritizes objectivity. We pursue uncorrelated returns, in stocks that stand up based on their profits and income potential – stocks that have staying power and income potential, current outperformance as well as a strong future outlook.
But unfortunately, you need more than just one stock like Coke. You need an entire portfolio that’s built to last.
That’s exactly what we have to offer via our “Perfect Income” portfolio, which is chock full of winning dividend stocks that pay you predictably, and plot double-digit returns each and every year.
In our latest private briefing, we’ll show you how many investors could boost their retirement income by 3X to 4X – without relying on aggressive or risky assets.
That’s right. No weird tricks like penny stocks or options trading is required. We’re just talking high-quality, commonly held companies – many of which, like Coca-Cola, are brands you know and love.
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