Is Coca-Cola a Buy After Dividend Raise?

After a long streak of incremental dividend payouts stretching a full 62 years consecutively, beverage manufacturer The Coca-Cola Company (NYSE:KO) is undoubtedly a dividend juggernaut.

Early this year, the company announced a 5.4% raise in its quarterly dividend from $0.46 to $0.485 per share, demonstrating its willingness and ability to return more value to shareholders.

So, what is the dividend per share of Coca Cola in 2024? For the full year the annualized dividend payout of Coca Cola is $1.94 per share, which is a 3.14% yield.

The company has a brand portfolio that encompasses 2.2 billion beverage servings daily so the reliability of revenue streams and profits is likely to flow for the foreseeable future.

Are Coca-Cola’s Dividend Payments Safe?

The company has earned dividend king status by raising dividends for more than a half century. Dividend Kings are companies that have paid and raised their dividends for at least 50 consecutive years.

Currently, Coca-Cola pays shareholders $1.94 per share annually, translating to a 3.34% yield while maintaining a four-year average dividend yield of 3.04%.

Renowned for its tenured dividend-paying history, the company’s dividend payouts have grown at a compounded annual growth rate of 4.2% over the past three years and 3.5% over the past five years.

The company’s strong cash flows are the foundation on which future dividend obligations can be reliably paid. In 2023, operating cash flow stood at $11.6 billion, up 5.3% year-over-year. Non-GAAP free cash flow reached a record-breaking $9.70 billion, which is $213 million more than the previous year.

These figures show that Coca-Cola has more than enough cash to keep paying those dividends, which amounted to approximately $8 billion in 2023. Additionally, the payout ratio is not particularly stretched, sitting at 74.2%.

So, with a solid track record of growing dividends and plenty of cash flow to support them, Coca-Cola’s dividend looks pretty reliable.

And as we inch closer to a rate-cutting environment, companies with a track record of growing dividends are increasingly like gold dust for investors. Putting all the pieces together means the recent KO dividend hike of 5.4% is likely to attract even more investors, and thereby put upward pressure on the share price.

As summer approaches cravings for refreshing soft drinks rises, Coca Cola is likely to thrive once more.

Will Coke Quench Your Financial Thirst?

Judging from its FY2023 financial performance, Coca-Cola’s financial strength is unlikely to fizzle out anytime soon. To the contrary, it seems to be getting stronger.

The company generated $45.75 billion in net operating revenue last year, posting a 6.4% increase from the previous year and an 18.4% jump from 2021. Thanks to Coca-Cola’s extensive brand portfolio spanning over 200 brands in as many countries and territories, revenues are highly diversified by both geography and product.

Gross profits hit $27.23 billion in the same year, up 8.9% year-over-year and 16.9% from 2021.

Coca-Cola posted $10.71 billion to its bottom line after taking into account taxes and net interest expenses, which boiled down to a 23.4% profit margin.

Net income per share on a non-GAAP basis stood at $2.47, up 12.8% from 2022 and 9.8% from 2021.

The beverage giant also possesses a virtually impenetrable balance sheet. As of December 31, 2023, Coca-Cola had cash and cash equivalents of $9.37 billion. Although indicating a marginal decline compared to $9.52 billion as of December 31, 2022, the current liquidity position does not reveal much, if any, weakness.

Profitability is expected to improve with management expecting adjusted earnings per share to grow by between 4% and 5% from $2.69 in 2023. They also anticipate generating approximately $9.20 billion in non-GAAP free cash flow through cash flow from operations.

With the summer peak just around the corner, it’s clear that Coca-Cola isn’t just quenching consumer thirsts, but investors’ ones too.

Should You Buy Coca-Cola Now?

Beyond its strength as a consistent dividend-payer, Coca Cola stock has also provided consistent returns over the past six months, gaining 8.7%.

The key numbers all look good too with earnings per share of $0.70 posted last quarter, marking a modest 2.3% increase versus last year.

Looking to the future, earnings are anticipated to increase by 4.7% in 2024, followed by an even better 6.8% increase in the following year. It’s noteworthy that Coca-Cola has consistently outperformed these earnings estimates in each of the past four quarters.

Furthermore, the global soft drinks market is still growing. According to a report, the global soft drinks market could swell from $836.2 billion in 2022 to $1.50 trillion by 2030, growing at a steady annual rate of 7.3%.

Coca-Cola’s marketing prowess will no doubt help it tap into these expanding markets, especially in emerging economies.

On a multiples basis, valuation is looking a little stretched with Coke shares trading at a forward non-GAAP price-to-earnings ratio of 20.63. While elevated, KO is a bargain relative to the past and is trading at 15.7% below its average valuation over the past five years.

The company’s strong margins and dividend raises signal that the stock is on track to be a strong performer long into the future.

Wall Street seems to agree with 13 of the 20 analysts rating Coca-Cola a Buy at this juncture, and placing a current target price of $66.18 per share on it, indicating a 13.9% upside.

Summing it all up, Coke has strong cash flows, a reliable dividend, a history of rewarding shareholders, and low price volatility. If there were one drawback at this time, it is the elevated multiples, such as a high P/E ratio and high revenue multiple at this time. Indeed the company’s price-to-book multiple of 10.3x is also lofty. 

Overall, Coca Cola is unlikely to dividend any investors who commit to it over the long-term though a pullback short-term will make the reward to risk ratio more compelling.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.