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With a wide range of drink brands and a presence in every corner of the world, Coca-Cola (NYSE: KO) is a familiar name to consumers. For investors, this business has generated a total return of 43% in the past five years.

That might be disappointing for those looking at Coca-Cola as a potential holding for their portfolios, especially since it has seriously lagged behind the broader S&P 500 market index. But where will this top beverage stock be in five years?

Coca-Cola is a high-quality business

It's first important to understand that this is a wonderful business. Investors looking at stocks to own should put these types of high-quality companies on their watch lists.

The top competitive strength that Coca-Cola possesses is its powerful brand, which is precisely what makes up its economic moat. It helps the business stand out from rivals in the industry.

Besides having a long history of giving consumers a consistent product, Coca-Cola has also developed unmatched competency in the marketing department. This focus should keep the brand fresh in the minds of consumers.

Another reason to appreciate this company is its financial picture. Coca-Cola's adjusted operating margin was a stellar 30.7% in Q3, indicating a lucrative business model.

Consistent profitability has benefited shareholders directly because Coca-Cola has paid a dividend that has actually increased in a jaw-dropping 62 straight years. Investors will struggle to find businesses that have this type of phenomenal track record at returning excess profits to shareholders.

As of this writing, the stock offers a dividend yield of 3%. That's more than double the S&P 500's 1.3%, which can be enticing for investors seeking steady and rising payouts from the companies they own.

If you have Coca-Cola on your watch list, you might be excited to learn that Warren Buffett-led Berkshire Hathaway has long been a shareholder. The conglomerate owns 9.3% of the beverage giant. While investors should always do their own due diligence before buying a stock, it's encouraging to know that one of the greatest capital allocators ever is such a fan of a particular company.

Show me the returns

Long-term investors should appreciate Coca-Cola's positive attributes, which is exactly what should be prioritized when looking for companies to own for several years. However, I'm confident that the business will continue to underperform the overall S&P 500. For me, this is the key reason not to buy the stock today.

In the past five years, Coca-Cola's net operating revenue increased at a compound annual rate of just 4.5%. Investors aren't going to get huge growth numbers from this company because Coca-Cola operates in a very mature industry that doesn't typically register strong growth, at least for the incumbents. This business has been around since 1886 and already has a presence in more than 200 countries and territories. Naturally, there isn't much room for expansion.

Moreover, Coca-Cola's current valuation leaves much to be desired. Shares trade at a price-to-earnings ratio of 26.4. For comparison's sake, the S&P 500's multiple right now is 25.4.

If Coca-Cola's valuation were to drop substantially, then the situation would be far more interesting. In that scenario, there would be the possibility that the P/E multiple could rise over time.

Modest growth prospects and a valuation that's above the market average are two good reasons to avoid owning the stock, especially if you seek outsized returns. This stock isn't great for growth investors.

But for those who prioritize owning stable companies that generate steady and rising income, Coca-Cola may be a compelling buy -- even at today's somewhat uncomfortable share prices. In some ways, you can't beat the real thing.

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*Stock Advisor returns as of November 11, 2024

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.