U.S. equities have experienced significant volatility this year; however, the S&P 500 index has made notable gains, rising by 17.3% over the past year through September 16. Despite this overall positive trend, some stocks have underperformed significantly. Notably, shares of Coca-Cola and Eli Lilly have seen declines of more than 8% and 14%, respectively.
Such declines might deter some investors, but for those focused on long-term dividend growth, these underperformers can present enticing buying opportunities.
Coca-Cola, a globally recognized brand since 1886, operates in over 200 countries and offers a range of beverages. Although it is considered a mature company and its rapid revenue growth days may be behind it, there are positive indicators. In the second quarter, Coca-Cola reported a 5% increase in revenue when factoring out foreign currency fluctuations and acquisitions, contributing to a 15% rise in adjusted operating income. The revenue uptick was primarily driven by higher prices and a shift in product mix, overshadowing a slight dip in volume. This volume decrease may be linked to consumers grappling with ongoing inflationary pressures; however, as prices stabilize, an eventual recovery in sales volume is expected. Notably, Coca-Cola’s market share in the nonalcoholic beverage sector has continued to expand.
For Coca-Cola investors, dividends are a key component of total return. The company has been consistent in its dividend payouts, raising its dividend by over 5% in February, marking 63 consecutive years of increases—an achievement that designates it as a Dividend King. With a dividend yield of 3.1%, significantly above the S&P 500’s average of 1.2%, and a payout ratio of 71%, Coca-Cola appears well-positioned to sustain its dividend commitments.
On the other hand, Eli Lilly, which has also been a prominent player since the late 1800s, is recognized for its development of treatments for diabetes, cancer, and immunology-related conditions. Three key products, Mounjaro, Zepbound, and Verzenio, constitute 65% of the company’s $15.6 billion revenue in the second quarter, demonstrating remarkable top-line growth ranging from 12% to 172%. In this quarter alone, total revenue surged by 38%, while adjusted earnings per share rose by 61% to $6.31. In light of these results, Eli Lilly’s management has updated its 2025 revenue guidance to indicate over 35% growth from a projected range of $60 billion to $62 billion.
Investment in research and development continues to be a top priority for Eli Lilly, which increased its R&D spending by 23% year-over-year to reach $3.3 billion—representing over 21% of revenue. While some may argue that the stock price, which previously traded at a price-to-earnings (P/E) ratio exceeding 100, has become more attractive with a current P/E of 50, the yield remains on the lower side at 0.8%, below the S&P 500. Nevertheless, Eli Lilly has consistently raised its dividends annually since 2015, and with a relatively low payout ratio of 37%, the company’s earnings are more than sufficient to cover dividend payments.
Both Coca-Cola and Eli Lilly offer compelling opportunities for long-term investors focusing on dividends and total return potential, set against a backdrop of current market dynamics.
