The Coca-Cola Company (KO) hikes dividend by 6% & its yield is at the top of its five year range

Coca-Cola’s (NYSE:KO) dividend was increased by a sold 6%.  Its overall yield is 3.57%. The firm started paying a dividend in 1970.

The Coca-Cola company is the world’s biggest non-alcoholic beverage firm. It is also a true international company, with close to 60% of its revenue from outside the United States. Its earnings from abroad are even higher. The iconic firm’s premium brands include Coca-Cola, Diet Coke, Fanta, Sprite, Powerade, and orange juice maker Minute Maid.  The company maintains over 20 unique brands that are considered blockbuster, or those that contribute $1 billion or more each in revenue per year. The firm also owns a majority share in its distribution market. The firm also provides energy drinks, tea, coffee, and flavoring ingredients. The company is located in Atlanta, Georgia and founded in 1886.

Coca-Cola has maintained a solid three-year growth rate of dividends of 6.7 percent. Coca-Cola currently ranks 1st in dividend yield within the large cap consumer goods, soft drink beverages category. The quarterly dividend for the April payment will be $0.37 versus the prior year rate of $0.35 per share. Coca-Cola is a member  of our Top 100 Dividend Stocks.  (see below).

top-100

The dividend will be paid at the new higher rate on April 3, 2017, to shareholders of record at close of business on March 15, 2017. The Coca-Cola Company is currently priced at $41.60. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
3/15/2017 0.37
11/29/2016 0.35
9/13/2016 0.35
6/13/2016 0.35
3/11/2016 0.35
11/27/2015 0.33
9/11/2015 0.33
6/11/2015 0.33
3/12/2015 0.33
11/26/2014 0.305
9/11/2014 0.305
6/12/2014 0.305
3/12/2014 0.305
11/27/2013 0.28
9/12/2013 0.28
6/12/2013 0.28
3/13/2013 0.28
11/28/2012 0.255
9/12/2012 0.255
6/13/2012 0.255
3/13/2012 0.255
11/29/2011 0.235
9/13/2011 0.235
6/13/2011 0.235
3/11/2011 0.235
11/29/2010 0.22
9/13/2010 0.22
6/11/2010 0.22
3/11/2010 0.22


Analysis of Coca-Cola is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 3.57% 88
Dividend Growth (3-7 year avg) 7.2% 271
Forward P/E 21.29 226
S&P Financial Rating AA-  80
Beta  0.75 75
Total Score 740
% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr low Yield % 5 yr max Yield %
3.57% 6.7% 7.7% 7.90 5.26 3.30 5.26 2.45% 3.57%

Positives;

  • Coca-Cola’s dividend yield is above that of the S&P 500 Index.
  • Coca-Cola’s current dividend yield (3.57%) is at the top of its five-year average historical dividend yield.
  • Coca-Cola has paid out a dividend consecutively for the past 47 years.
  • Coca-Cola maintains an investment grade rating of AA-.
  • Coca-Cola has maintained a three-year growth rate of dividends of 6.7 percent.
  • Coca-Cola maintains a beta of 0.75, lower than the average company.

Negatives;

  • Coca-Cola is trading at the top of its ten-year average price/sales (P/S) ratio and at an elevated price/earnings ratio versus the market.
  • The payout ratio for the firm has been climbing as earnings have stagnated while dividend payments continue to rise.

Latest Earnings & Overall Analysis:

Coca-Cola issued its earnings data on February 9th. The company reported $0.37 EPS for the quarter, topping the consensus estimate of $0.36 by $0.01.  This was lighter than the 38 cents generated per share in the prior-year period. Revenue also fell to $9.41 billion, from $10.01 billion in the comparable quarter a year earlier.  Wall Street expectations were $9.13 billion in revenue, thus the firm did better than expectations. A solid price increase along with better sales in certain products drove 3% organic revenue growth for the year.  As for fiscal year 2017, Coke expects earnings to decline 1 to 4 percent. Unfortunately, this was below analyst expectations of $1.97 a share, six cents above the $1.91 per share posted for full-year 2016. Remarkably, earnings per share have stagnated since 2012.

 

2016 2015 2014 2013 2012
Earnings per Share 1.91 2.00 2.04 2.08 1.97
Annual Dividend 1.4 1.32 1.22 1.12 1.02
Payout Ratio 73.68% 66.00% 59.80% 53.85% 51.78%

This stagnation is due to poor sales for soda along with a very strong dollar. It move into energy and other alternative drinks have not assisted the firm in meeting its growth objectives.  The stock is up less than 20% over this time period. The firm offered up a 3% increase in organic revenue for the next twelve months.  However, the negative currency effects along with divestitures will impact overall earnings, resulting in the forecast number of $1.88.

Beverages account for 30% of sales and continue to give mixed results. The bottled water category maintained solid double-digit growth in the quarter.   The firm is putting a focus on smaller sizing of its products.  In fact, sales of Coke Light and Diet Coke were better than expected for Q4.  This includes overseas markets as well. The firm has layed out a 2020 vision. The goals are very high, especially considering the results since 2012. Coca-Cola expects to up volumes by 3%-4% while producing revenue increases in the mid-single-digits.  Earnings are expected to rise by over 6% per year.  The firm has indicated that its focus on non-carbonated beverages will assist growth. This business has become a larger portion of the firm’s overall revenue. In the past decade, the revenue from these products has risen by 8%, from 20% to 28%.  This continued growth along with continued emerging market penetration will get the firm to meet its high 2020 expectations.

Also, at the end of this year Coca-Cola will off-put its North American distribution assets through a sale or spinoff.  The firm hopes this will allow the firm’s management team to focus upon its key products and overseas growth operations. There is also a change in the management chair. Longtime CEO Muhtar Kent is leaving. His replacement is Chief Operating Officer James Quincey, who is well-regarded.  The shakeup at the top might allow for the firm to finally meet its growth targets and actually growth earnings per share in the next few years.

Earnings per Share 2017 (projected) 1.95
Dividend 1.48
Payout Ratio 75.90%

Coca-Cola is a very solid company with one of the most recognizable brands in the world. the firm has paid dividends for 55 years, making it a dividend legend. The yield is well above average and the stock maintains a very low beta of 0.75  Thus those investors looking for a high degree of safety will be comfortable owning KO.  The downside for investors is its meager growth and climbing payout ratio. New CEO James Quincey has his work cut out for him.

Overall the firm is a worthwhile investment and a near utility like structure. Although Pepsi is ranked higher in our Top 100 stocks list, Coca-Cola is also within the group of consumer companies due to its high yield, and stability. Its yield in 2013 was under 2.5% whereas today it stands much higher at 3.57%

Despite the firm’s meager earnings growth and high payout ratio, it new CEO, high relative dividend yield, consistent dividend growth history, low beta, and investment grade rating makes The Coca-Cola Co. qualify as one of our Top 100 Dividend Stocks

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The Coca-Cola Company Dividend Yield Historical Chart (Click to enlarge)

ko3

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years. 

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