Title: Domino's Pizza vs. Coca-Cola: Two Ticking Investment Titans
Uniting two heavyweights of the consumer goods sector, Domino's Pizza (DPZ, -2.51%) and Coca-Cola (KO, -1.04%), somehow feels like planning an epic get-together. These renowned companies, with their rich histories and rabid fanbases, have consistently delivered returns for their shareholders.
As I pen this article, shares of both Domino's and Coca-Cola are nursing substantial declines from their respective 52-week highs - down 14% to be precise. Could this be an excellent time to snatch up shares of these industry titans while they're on sale? But which one offers the better buy now?
The Case for Coca-Cola
Entering an era where people are increasingly gravitating towards healthier beverage options, Coca-Cola takes things a step further by offering a diverse range of over 200 brands. This extensive portfolio spans categories such as sports drinks, flavored water, juices, and dairy products.
In recent years, strategic acquisitions have solidified Coca-Cola's grip on the non-alcoholic ready-to-drink beverage market. Emerging and developing markets have emerged as significant growth drivers for the behemoth, promising even brighter prospects for the future.
Following a challenging 2022 and 2023, Coca-Cola finally managed to weather through supply chain disruptions and inflationary pressures. The company reported a 9% year-over-year increase in organic revenue in its fiscal Q3 2024 (Sept. 27), thanks to increased pricing and the ongoing premiumization of its iconic brand portfolio.
Recently, Coca-Cola has been transferring more control to its independent partners by refranchising its international bottling operations. By doing so, the company has been able to focus on marketing, generating high-margin cash flow from fees and royalties. The end result of this strategy was undeniable- a 13% leap in comparable currency-neutral earnings per share in its fiscal Q3 2024, further cementing its blue-chip status.
Investors optimistic about Coca-Cola's potential to continue fueling growth should consider buying and holding shares of the company for the long haul.
The Case for Domino's Pizza
With over 21,000 outlets across more than 90 countries, Domino's Pizza stands tall as one of the world's largest pizza chains. Not surprisingly, Domino's shares a business relationship with Coca-Cola through a long-term commercial partnership. Both companies have expanded globally, relying on the power of franchise agreements.
Billionaire Warren Buffett, the brains behind Berkshire Hathaway, has been a long-time investor in Coca-Cola, and recently, Berkshire added Domino's Pizza to its portfolio. The latest SEC filings suggest that Berkshire now holds a 3.7% stake in Domino's Pizza, surpassing its 9.3% stake in Coca-Cola.
Domino's has embarked on a journey of financial transformation after a rocky 2023. In its fiscal Q3 2024 (Sept. 8), U.S. store sales grew by 3% YOY, a stark contrast to their 0.6% decline in fiscal Q3 2023. Impressive margin improvements helped the company lift its earnings per share by 16% in the first nine months of the year.
Domino's growth potential is its ultimate selling point, especially in international markets, where it remains significantly underpenetrated. The company aims to achieve annual global retail sales growth of 7% long-term, with the promise of even more impressive income growth. Domino's brand recognition and reputation for quality make it a worthy contender for consideration as an investment.
A Tough Choice
Both Domino's Pizza and Coca-Cola are on my list of bullish picks, and I have a strong belief that their share prices will be higher by this time next year thanks to a resilient economy.
However, if I must choose one as the better buy today, I would incline towards Coca-Cola. Its superior dividend yield and robust historical performance set it apart from Domino's Pizza.
Coca-Cola's current dividend yield stands at 3% compared to Domino's 1.3%. Furthermore, Coca-Cola is known as a Dividend King, having increased its dividend for 63 consecutive years. Its forward P/E ratio of 22, based on Wall Street's consensus estimate for 2024, also suggests that it may have more upside compared to Domino's P/E ratio of 27.
Both stocks could be a valuable addition to a well-diversified portfolio, catering to investors with a long-term investment horizon.
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In light of Coca-Cola's robust strategic moves, such as its diverse product portfolio, acquisitions, and focus on high-margin revenue streams, investing in its shares could potentially yield substantial returns over time.
Given Coca-Cola's impressive track record of dividend payments, with 63 consecutive years of increases, and its current dividend yield of 3%, it could be an attractive option for investors seeking income-generating opportunities.
