Investor Alert: Coca-Cola Boosts Dividend to Record High

In the midst of the current boisterous stock market, it’s crucial not to overlook the accomplishments of stalwart companies for the sake of chasing the latest hot trend. Coca-Cola (NYSE: KO), a dividend-paying giant, has surged ahead by raising its dividend by a remarkable 5.4% to a record $0.485 per share. This dividend is scheduled to be paid on April 1 to shareholders on record as of March 15. The latest 13F filing from Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) revealed the retention of 400 million shares of Coca-Cola, positioning it as their fourth-largest public equity holding. Undoubtedly, this dividend stock is currently a compelling buy.

Image source: Getty Images.

The Story of Consistently Increasing Dividends

The $0.10 hike of the dividend is the largest nominal increase since Coca-Cola’s $0.10 hike between 2014 and 2015. Despite a lower percentage increase of 5.4% compared to 8.2% ten years ago due to the higher base dividend, it is worth noting that the overall trajectory remains positive.

Data source: Coca-Cola.

This dividend augmentation represents the largest percentage increase since 2017 to 2018, a testament to the company’s robust revenue and earnings growth.

Unexpectedly Strong Growth by Coca-Cola

Despite grappling with shifts in consumer demand, supply chain disruptions, and inflationary challenges alongside its peers, Coca-Cola has displayed commendable pricing resilience.

KO Revenue (TTM) data by YCharts

As reflected in the chart, Coca-Cola’s earnings have currently reached a decade-long peak, with substantial improvement in sales as well. Over the last three years, its revenue has surged by 37%, while diluted earnings per share have witnessed an even more impressive ascent of 49%.

Although the company’s revenue is still below the levels from a decade ago, it has transformed from a business with operating margins in the low 20s to one in the high 20s. This transformation is attributed largely to operational enhancements and successful portfolio expansions through brand acquisitions, such as Topo Chico in 2017, Costa Coffee in 2018, and full ownership of BodyArmor in 2021.

All three acquisitions venture beyond Coca-Cola’s traditional soft drink purview, providing the diversification necessary to address shifting consumer preferences. While facing some challenges, notably with BodyArmor, the overall management of new brands by Coca-Cola has stood as a resounding success.

The Perfect Supporting Player

Despite underperforming the S&P 500 over the last decade with a total return of 110%, significantly trailing the 228% of the S&P 500, Coca-Cola is poised to deliver superior returns as long as its fundamentals continue to strengthen. Nevertheless, the standout feature of Coca-Cola as an investment remains its dividend, hence underscoring its status as a beloved long-term holding for Berkshire Hathaway. As echoed in the 2022 annual letter from Berkshire Hathaway: “The total cost was $1.3 billion… The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million.”

Coca-Cola is the quintessential role player in any diversified portfolio – less focused on eye-popping capital gains but steadfastly fulfilling a distinct purpose, even during market downturns.

Coca-Cola: An Attractive Investment

With a dividend yield of 3.3% compared to 4.2% for the 10-year Treasury, it is evident that Coca-Cola emerges as the clearer choice between the two. Its dividend epitomizes dependability – not quite at the level of the risk-free rate from the U.S. government, but investors can rely on Coca-Cola to deliver one of the most stable payouts while participating in the stock market. Moreover, the company is currently in its best financial shape in over seven years, reaffirmed by its sizable dividend raise showcasing confidence in its earnings trajectory and the ability to build on this augmentation. In addition, trading at a price-to-earnings ratio of 24, Coca-Cola represents reasonable value, especially when compared to slightly over 27 for the S&P 500.

Ultimately, Coca-Cola interweaves a substantial dividend yield with a steadfast business model, making it a top-tier dividend stock for cautious investors or retirees seeking to supplement their retirement income.

Should you invest $1,000 in Coca-Cola right now?

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Daniel Foelber holds no position in any of the mentioned stocks. The Motley Fool holds positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

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