Is Coca-Cola dividend sustainable?
Coca-Cola's Dividend Is Well Covered By Earnings
In the last 30 years, shares of the beverage giant have produced a total return (including dividends) of 1,130%. That lags the gains for the broader S&P 500. And yet, over the very long term, this top beverage stock has made for a solid investment.
Coca-Cola Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was $1.12, compared to the most recent full-year payment of $1.84.
Stocks and mutual funds that distribute dividends are generally on sound financial ground, but not always. Stocks that pay dividends typically provide stability to a portfolio but may not outperform high-quality growth stocks.
You can calculate this ratio by dividing the annual dividend per share by the annual earnings per share. So, for example, if a company has an annual dividend per share of $2 and an annual EPS of $5, the dividend payout ratio is 40%. A 40% payout ratio suggests that the dividend is sustainable.
Cash flow is projected to drop in 2024, but that's mainly because of one-time tax payment issues. The long-term outlook is highly positive for co*ke's cash trends, and so investors can count on further steady dividend growth over the coming years (and decades).
co*ke generated about $10 billion of free cash flow in 2023 and returned nearly the same amount to investors through stock buybacks and a rising dividend. The dividend payment has increased for over 60 consecutive years, giving co*ke one of the longest track records on the market.
Safest Dividend Stock #1: Globe Life Inc. (
Founded in 1979, the company has raised its dividend every year for the past 18 years. Globe Life reported Q4 and full year 2023 earnings on February 7th, 2024. For the quarter, earnings-per-share were $2.88, above the $2.46 the company reported in the same quarter of 2022.
| Ticker | Name | Dividend Safety |
|---|---|---|
| ENB | Enbridge | Safe |
| EPD | Enterprise Products Partners | Safe |
| VZ | Verizon | Safe |
| WHR | Whirlpool | Borderline Safe |
A massive passive income stream
Berkshire currently owns 400 million shares of Coca-Cola. This means that on an annualized basis, Warren Buffett's company generates $736 million in dividend income from the beverage giant. That is a huge passive income stream that likely explains why Buffett isn't exiting the position.
Can you really live off dividends?
It is possible to achieve financial freedom by living off dividends forever. That isn't to say it's easy, but it's possible. Those starting from nothing admittedly have a hard road to retirement-enabling passive income.
Over time, the cash flow generated by those dividend payments can supplement your Social Security and pension income. Perhaps, it can even provide all the money you need to maintain your preretirement lifestyle. It is possible to live off dividends if you do a little planning.
To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%. For example, Johnson & Johnson stock currently yields 2.7% annually. $1 million invested would generate about $27,000 per year or $2,250 per month.
A range of 35% to 55% is considered healthy and appropriate from a dividend investor's point of view. A company that is likely to distribute roughly half of its earnings as dividends means that the company is well established and a leader in its industry.
The company's dividend growth rate, coupled with a reasonable payout ratio and solid profitability, suggests that its dividends are sustainable in the foreseeable future.
Yields from 2% to 6% are generally considered to be a good dividend yield, but there are plenty of factors to consider when deciding if a stock's yield makes it a good investment.
Instead, the trust owns concentrated stock positions in less heard of companies, like Coca-Cola FEMSA, which is a Mexican bottler of popular soft drinks. There is also an environmental theme that can be found within the portfolio, with top holdings including Ecolab, Waste Management, and John Deere.
Warren Buffett Shares Why He Loves Coca-Cola and American Express.
In the last 30 years, shares of the beverage giant have produced a total return (including dividends) of 1,130%. That lags the gains for the broader S&P 500. And yet, over the very long term, this top beverage stock has made for a solid investment.
Con: The Soda Slide
Perhaps the largest concern that investors have about KO stock is the fact that people are simply turning away from soda and sugary drinks. Coca-Cola's most recent earnings reports prove that people are buying fewer sugary drinks and most analysts believe that trend is going to continue.
Should you invest in co*ke or Pepsi?
Pepsi is the cheaper stock, but investors might still prefer paying the premium for co*ke over its less expensive rival. Sure, you can own Pepsi for 2.5 times sales, or less than half of co*ke's price-to-sales (P/S) ratio of 5.6. You'll get roughly the same 3% dividend yield in either case.
Coca-Cola Co.
(NYSE:KO) is one of the most popular recession-proof stocks in the U.S., with an attractive dividend payout history. The Dividend Aristocrat pays $1.84 in dividends annually, yielding 3.09% on its current price.
Microsoft (NASDAQ: MSFT), Coca-Cola (NYSE: KO), Procter & Gamble (NYSE: PG), Chevron (NYSE: CVX), Home Depot (NYSE: HD), JPMorgan Chase (NYSE: JPM), and United Parcel Service (NYSE: UPS) represent their industries well and are all top dividend stocks you can count on for decades to come.
- Verizon Communications VZ.
- Johnson & Johnson JNJ.
- Philip Morris International PM.
- Altria Group MO.
- Comcast CMCSA.
- Medtronic MDT.
- Pioneer Natural Resources PXD.
- Duke Energy DUK.
Dividend Kings are companies that have paid and raised their dividend for at least 50 years. Some standouts to consider now include Altria, Kenvue, Coca-Cola, 3M, and Walmart.
