The Coca-Cola Company (NYSE: KO) and its flagship carbonated beverage are American institutions. I grew up drinking the sweet, sugary stuff. A lot of it. In college, I often drank an entire 2-liter bottle in one day.
Luckily for my waistline, I’ve all but given up drinking soda. Unfortunately for Coke, the rest of the country has, too.
U.S. soda consumption has declined more than 25% over the last 20 years. Soda (I call it pop) has become the new tobacco in the war against unhealthy lifestyles. Coke, the world’s largest soft drink maker, has not been immune.[ad#Google Adsense 336×280-IA]For a while, Coke focused on “going international” to make up for the U.S. decline.
But after penetrating nearly every market on the globe, Coke has turned its focus to alternative beverages.
But Coke has still struggled to expand significantly over the last three years.
Sales have been essentially flat as the company has scrambled to diversify its product lines into healthier categories.
From coconut water to tea to juice, Coke has been investing in and gobbling up brand after brand.
Will those investments pay off for dividend investors?
Marc reviewed Coke’s dividend safety two years ago. After its 52nd consecutive dividend increase, the Safety Net awarded the company an “A” rating.
Let’s find out if the company’s rock-solid dividend safety grade still stands.
The Cash Fountain Still Flowing
Sales of carbonated beverages may be down, but Coke’s free cash flow is up. It has grown 25% from $6.6 billion in 2011 to $8.2 billion in 2014. And although growth is slowing, analysts expect Coke to report $8.4 billion in free cash flow for 2015 – a 1.85% increase.
Cash flow growth is important because that’s what pays the dividend bills. Coke has a lot of them.
In 2014, Coke distributed $5.4 billion, or 65.17% of its free cash flow, to shareholders in dividends. In 2015, the bill grew to $5.8 billion, giving Coke a payout ratio of 68.88%.
Both are well below the Safety Net’s 75% threshold, giving Coke plenty of room to raise the dividend even if free cash flow stalls in the years to come.
A Pending Dividend Pop
Next month, investors are anticipating Coke will raise its dividend for the 54th consecutive year. Over the last five years, the annual hike has averaged nearly 8.5%.
This year, analysts are forecasting a 7.5% jump.
Coke has an impressive dividend track record. Look for this to continue.
A Taste of Things to Come
Americans are slowing down when it comes to soda consumption.
But it doesn’t look like Coke will be turning off investors’ dividend spigot anytime soon.
Any tales of Coke’s dividend demise have been greatly exaggerated.
Dividend Safety Rating: A
— Kristen Haugk[ad#IPM-article]
Source: Wealthy Retirement