The Coca-Cola (NYSE: KO) dividend history is long and reliable. The stock has made a great addition to many income portfolios. Let’s check out the business, dividend history and payout safety going forward.
Business Overview and Highlights
Coca-Cola is a $196 billion business. The company is based out of Atlanta, Georgia and employs 61,800 people. Last year, Coca-Cola pulled in $35 billion in sales, which works out to $573,000 per employee.
The business is in the consumer sector and holds a great credit rating (A+) from the S&P. This allows Coca-Cola to take on cheap debt to build its business and pay dividends.
Coca-Cola has paid shareholders a dividend since 1920. The company has also increased its dividend over the last 55 years. It’s been rewarding shareholders for decades… but will this continue? Let’s take a look at the dividend trend over the last 10 years.
10-Year Dividend History
The company paid investors $0.76 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.48. That’s a 95% increase! You can see the annual changes below.
The compound annual growth is 6.9% over 10 years… but over the last year, the dividend climbed 5.7%. The slowdown in dividend growth isn’t a great sign. However, Coca-Cola still might be a good income investment. Let’s take a look at the yield.
Current Yield vs. 10-Year Average
Coca-Cola’s long history of paying dividends shows that it is one of the top dividend stocks around. This also makes the dividend yield a value indicator. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll cover that soon.
The dividend yield comes in at 3.38%, which is slightly below the 10-year average of 3.63%. The chart below shows the dividend yield over the last 10 years.
The lower yield indicates that recent buyers have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean-reverting with share price changes.
Improved Dividend Safety Check
Many investors look at payout ratio to determine dividend safety. To do this, they look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that for every $1 Coca-Cola earns, it pays investors $0.60.
The payout ratio is an sign of dividend safety… but accountants adjust net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Coca-Cola’s payout ratio based on free cash flow over the last 10 years.
The ratio is volatile over the last 10 years, and the trend is up. The last reported year shows a payout ratio of 118.8%. This doesn’t give room for Coca-Cola’s board of directors to sustainably raise the dividend.
Closing Thoughts on Coca-Cola Dividend History and Safety
Although the dividend history is long, it might not be a great time to buy. The yield is slightly below its 10-year average and the payout ratio is above a sustainable level. Unless free cash flow increases, Coca-Cola might slow down its dividend hikes.
If you’re interested in seeing more, please comment below. You can also check out our dividend reinvestment calculator.
Good investing,
Rob
