The carbonated beverage giant, Coca Cola (KO, Financial), is not only the market leader in its sector, but is also one of the most-respected paymasters today. The company knows how to make investors happy with frequent dividend increases. With the recent increase in dividends, the company enters into the 53rd year of continuous dividend increase.
Most-loved dividend aristocrat
Over the last five years or so, Coca Cola’s increases in dividends have been in the range between 7 and 10%. During the third week of February, the company announced an 8% increase in dividend, must to the cheer of its investors. Currently, the dividend paid out by the company per quarter stands at $0.33 per share. Since this is the 53rd consecutive year that the company is increasing its dividend, it is one of the most-respected dividend aristocrats in the stock market. With this increase, the annual dividend of Coca Cola now stands at $1.32 per share. The company’s dividend yield and pay-out ratio are 3% and 66% respectively.
Adding value to investors
Coca Cola has been returning a considerable rate of return to shareholders in the form of dividends and share repurchases. One of the main reasons for the increased dividend rates in 2015 was because the company wanted to compensate for the reduced share repurchases in 2014 when compared to 2013. During 2013, Coca Cola had spent close to $3.5 billion towards share repurchases. However, this figure came down to $2.6 billion in 2014 – a reduction by 25%. During the same period, Coca Cola increased the total value of dividends to $5.4 billion from $5 billion in 2013. Overall the total pay-outs to shareholders had come down by at least $500 million during 2014.
Therefore, in a bid to compensate for this reduction, the company increased its dividends by a whopping 8%, much more than what investors and trade analysts had expected. On an average, close to 5% increase was anticipated by the experts; however, Coca Cola gave a pleasant surprise to its investors through this 8% increase. Share repurchases for 2015 are expected to be in the range of $2 to $3 billion. The following picture shows the rates of dividend and share repurchases of Coca Cola for the last few years:
Currently, the cash generated from operations per year is close to $10.6 billion, but the capital expenditure of the company is very less. Coca Cola is expected to pay off these expenses without incurring too much debt. The following picture shows the growth of dividends for Coca Cola over the last few years:
Path ahead
The company’s earnings are likely to take a small dip this year because of exchange rate issues. Coca Cola has a strong presence in developed economies like Europe, UK and Japan; therefore it is well-protected against the drop in their currencies (Europe, Sterling Pound and Yen) in the light of the strengthening of the US dollar. However, in emerging economies like Venezuela, Turkey and Greece, Coca Cola is facing the brunt of exchange rate problems as the currencies of these economies are getting weaker day by day. For 2014, the company paid out annual dividend of $1.22 per share and earned close to $2.04 per share, thereby resulting in good profits. However, for 2015, due to these external issues, Coca Cola, while paying out an annual dividend of $1.32 per share, will earn only $2.01 per share, resulting in a slight drop of 1.5% in earnings.
Conclusion
Having considered all these factors, one cannot deny that Coca Cola is a stock that is suitable for all kinds of portfolios. It has the habit of paying out consistent dividends, has strong financials, very limited debit and is the largest player in the beverage industry. With the recent announcement of dividend increase (53rd year in a row), Coca Cola has only cemented its place as one of the best stocks to buy for long term gains.
