Beverage giant Coca-Cola (KO) is a household name across the world, with an unmatched global appeal and irreproducible distribution system. At current prices, Coca-Cola (KO) is also yielding a sweet 3.28% dividend.
Investing in stocks that pay high dividends is an effective way for the conservative investor whose concern is mainly with the preservation of capital. When investing for a high dividend yield, the most important consideration for the investor is the sustainability of such dividends. Hence research into the underlying dividend payer is crucial.
Coca-Cola (KO) has a long dividend history, having paid out quarterly dividends since March 1962. The company has not gone one quarter since then without paying out a dividend to stockholders. Interestingly, since 1962 Coke’s quarterly dividend has risen a staggering 3180%. That’s a compound annual growth rate of 7.88%.
Over the past five years, the world’s largest nonalcoholic beverage company has paid out a sequentially higher dividend. The 2009 payout was 46% above that in 2005. Earnings have risen by almost the same percentage over that time. Coke has for the past five years paid out approximately 55% of earnings in the form of a dividend.
Warren Buffett famously said investing in Coca-Cola (KO) is a “royalty on swallows”. People by way of design require rehydration and enjoy sugar, and as such Coca-Cola commands a practical monopoly on swallows. Most of the non-alcoholic beverages consumed in the world aside from coffee are Coca-Cola products – hence when somebody swallows, Coca-Cola makes a profit.
This incredible business model is highly unlikely to be eroded at any point. Rather, Coke has the ability to perennially raise prices, keeping margins the same, without suffering any undue demand slack. This is called pricing power, and is one way the company manages to generate continually higher earnings and therefore, higher dividends.
Coca-Cola (KO) is about as good a business model as one can find anywhere in the world. Each year it throws off tremendous amounts of cash ($8 billion in 2009), grows its global brand power (intangibles are at $8.6 billion in the balance sheet), and is likely to be worth more in five years than it is now.
As such it’s an incredibly important company for any investor looking for a safe, bankable dividend, paid quarterly, from a company that cannot be easily competed with. You probably consume any number of Coca-Cola company products everyday, so why not generate income with sustainable, regular dividends from one of the greatest companies in the history of the world?
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