KO 63.7 (+0.95%)
US1912161007Beverages - Non-AlcoholicBeverages - Non-Alcoholic

Last update on 2024-06-25

Coca-Cola (KO) - Dividend Analysis (Final Score: 7/8)

Coca-Cola (KO) achieves a strong 7/8 score in our Dividend Analysis, showcasing its stability and performance over the years. Discover the details now!

Knowledge hint:
The dividend analysis assesses the performance and stability of Coca-Cola (KO) dividend policy using a 8-criteria scoring system.
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Short Analysis - Dividend Score: 7

We're running Coca-Cola (KO) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Criteria
Dividend Yield Higher than the Industry Average?
1
Average annual Growth Rate higher than 5% in the last 20 years?
1
Average annual Payout Ratio lower than 65% in the last 20 years?
0
Dividends Well Covered by Earnings?
1
Dividends Well Covered by Cash Flow?
1
Stable Dividends Since the Company Began Paying Dividends?
1
Dividends Paid for Over 25 Years?
1
Reliable Stock Repurchases Over the Past 20 Years?
1

Coca-Cola (KO) received a dividend score of 7 out of 8 based on an evaluation using an 8-criteria scoring system. The analysis focuses on the stability and performance of Coca-Cola's dividend policy, which has strong points, like a higher than average industry dividend yield, consistent dividend payments, and steady increases in both stock price and dividends per share. However, some areas need caution, notably the high dividend payout ratio, which exceeds 65%, raising sustainability concerns.

Insights for Value Investors Seeking Stable Income

Due to its consistent dividend payments and high yield, Coca-Cola remains a solid choice for income-focused investors. However, potential investors should keep an eye on the high payout ratio, which could pose risks to the sustainability of these dividends in the long run. With care taken to ensure the company maintains this balance, investing in Coca-Cola could be worthwhile for those seeking reliable dividends.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield signifies the amount an investor is paid for their investment in the form of dividends relative to the stock's price. It's crucial in gauging the return on investment from dividend payouts alone, excluding stock price appreciation.

Historical Dividend Yield of Coca-Cola (KO) in comparison to the industry average

In 2023, Coca-Cola's dividend yield stands at 3.1223%, considerably higher than the industry average of 0.97%. This indicates that investors in Coca-Cola are receiving a significantly higher income from dividends compared to those holding an average industry stock supporting the comparative high dividend yield. Over the past 20 years, Coca-Cola's dividend yields have consistently outperformed the industry average, often more than double. Notably, during challenging periods such as 2008 and post-2016, Coca-Cola maintained higher yields, demonstrating its resilience. Examining the trends, the company's stock price and dividend per share have both shown a steady increase. The stock price rose from $25.38 in 2003 to $58.93 in 2023, while the dividend per share increased from $0.44 to $1.84 during the same period. These positive trends suggest that Coca-Cola has managed to grow its payouts and shareholder value steadily, which is a good indication for potential and current investors.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate criterion evaluates whether a company's dividends are growing over time, which is essential for investors seeking consistent income growth.

Dividend Growth Rate of Coca-Cola (KO)

The Dividend Growth Rate of Coca-Cola (KO) over the past 20 years varies significantly, with some years showing growth rates as high as 13.6364% (2004) and others as low as 2.439% (2021). The average rate of 7.5835% is above the 5% threshold. However, the inconsistent rates, including significantly low values in certain years, might be off-putting. A stable and sustainable growth rate would be more attractive, so while the criterion is met, the variability raises caution.

Average annual Payout Ratio lower than 65% in the last 20 years?

Criterion 1.2 assesses whether Coca-Cola's average payout ratio has been below 65% over the past 20 years, which is a crucial aspect for long-term dividend sustainability. A lower payout ratio typically indicates that the company is retaining a significant portion of its earnings to reinvest in the business, ensuring future growth and its ability to maintain or even grow dividends.

Dividends Payout Ratio of Coca-Cola (KO)

The data provided indicates that Coca-Cola's average payout ratio is significantly above the 65% threshold, standing at 8721.57%. Moreover, individual yearly payout ratios have fluctuated widely, with extreme values reaching as high as 40000% in 2008 and going negative in 2018. Such high payout ratios are alarming and unsustainable in the long run. A payout ratio above 100% means the company is paying out more in dividends than its earnings, which is not a good trend for dividend sustainability. These excessive ratios raise concerns about the company's ability to maintain its dividend policy without compromising its financial stability.

Dividends Well Covered by Earnings?

Analyzing if dividends are well covered by earnings is essential to determine the sustainability of dividend payments.

Historical coverage of Dividends by Earnings of Coca-Cola (KO)

Coca-Cola's (KO) history of Earnings per Share (EPS) and Dividends per Share tells a complex story. In the earlier years (2003-2016), the dividend payout ratio sometimes exceeded 100%, indicating that the dividends weren't fully covered by earnings. For instance, in 2008, the EPS was $0.0019, but the dividend was $0.76— a coverage ratio of 400%, suggesting a significant depredation of reserves or debt to fund dividends. The company's EPS significantly improved from 2017 onward, with a peak negative outlier in 2018 (-$0.0046), making the coverage essentially irrelevant that year. Notably, from 2019 onwards, EPS figures are well above dividends per share, evidenced by ratios above 75% consistently through 2023. For instance, in 2020, EPS was $1.8037 with a dividend per share of $1.64, so the coverage stood at about 110%, indicating better robustness in dividend sustainability. Although the 2023 coverage ratio stands at approximately 74.24%, slightly lower, leaving some room for future uncertainties, it is still within a generally favorable range. This improved trend suggests positive steps toward maintaining a withheld position in dividend payments.

Dividends Well Covered by Cash Flow?

Free cash flow (FCF) represents the cash that a company generates after accounting for capital expenditures needed to maintain or expand its asset base. This metric is important because it shows how efficiently a company can produce cash that's available for dividends, debt repayment, and other investments.

Historical coverage of Dividends by Cashflow of Coca-Cola (KO)

From 2003 to 2023, Coca-Cola's free cash flow (FCF) has generally shown an upward trend, rising from $4.644 billion to $9.747 billion. Meanwhile, the dividend payout amount has also increased each year from $2.166 billion in 2003 to $7.952 billion in 2023. Dividing the dividend payout by FCF, the dividend coverage ratio has fluctuated. In the earlier years, the ratio indicates that dividends consumed less than or around half of the available FCF, suggesting strong coverage. For many years during this period, Coca-Cola maintained a dividend coverage ratio above 0.5, peaking at 1.16 in 2017, which suggested that FCF fully covered the dividends with room to spare. However, notable spikes, such as those in 2015, 2016, and 2017, suggest Coca-Cola's robust ability to cover its dividend obligations. The general positive trend in FCF, especially compared to steady increases in dividend payouts, indicates a healthy financial position. This steady increase is good, showing that Coca-Cola can not only sustain but potentially grow its dividends, reflecting confidence in its future cash flow generation capabilities.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Historical Dividends per Share of Coca-Cola (KO)

Over the past 20 years, Coca-Cola (KO) has demonstrated remarkable stability in its dividend payments. Beginning from 2003, the dividend per share was $0.44 and has consistently grown every year to reach $1.84 in 2023. This unwavering growth trajectory underscores the company's commitment to rewarding its shareholders. Notably, there is no year within this period where the dividend dropped by more than 20%. This trend is highly favorable for income-seeking investors who prioritize the reliability and predictability of dividend payouts.

Dividends Paid for Over 25 Years?

This criterion identifies if Coca-Cola has consistently paid dividends for at least 25 years, showcasing its stability and reliability in returning profits to shareholders.

Historical Dividends per Share of Coca-Cola (KO)

Coca-Cola has consistently paid and increased its dividends from 1998 to 2023, as evidenced by the data. Over these 25 years, the dividend per share rose substantially from $0.30 in 1998 to $1.84 in 2023. This steady increase highlights Coca-Cola's commitment to providing returns to its shareholders, indicating a strong financial health and dependable profitability. This trend is overwhelmingly positive, showcasing the company's stability and its shareholder-friendly policies, which can be especially reassuring for long-term investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate that a company is confident in its own financial health and is returning capital to shareholders. It can also signal that management believes the stock is undervalued.

Historical Number of Shares of Coca-Cola (KO)

Coca-Cola (KO) has demonstrated a consistent practice of stock repurchases over the past 20 years. The number of shares has generally declined from 4.92 billion in 2003 to 4.32 billion in 2023, which translates to an average reduction of 0.6463% per year. This trend is good as it shows Coca-Cola’s commitment to increasing shareholder value over the long term. The years with reliable repurchases further strengthen the signal that the company prioritizes return on equity for its shareholders.


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