1 Dominant Company That Just Raised Its Dividend for the 62nd Straight Year: Time to Buy the Stock?

I love Coca-Cola as an investment, but is it a screaming buy right now?

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The Coca-Cola Company (NYSE:KO) isn’t just a favourite of Warren Buffett‘s; it’s also a cornerstone of my personal portfolio.

This iconic company combines several great long-term investment qualities: double-digit margins and return on equity, low volatility with a beta of 0.57, and unparalleled brand recognition. And who doesn’t enjoy a Classic Coke?

Yet, what truly draws many investors to Coca-Cola is its dividend. Currently yielding 3.1%, it may not be the highest, but its consistency is unmatched – a staggering 62-year streak of dividend growth.

Here’s all you need to know about Coca-Cola’s dividend and my assessment of whether this stock is a buy right now.

Coca-Cola’s dividend

Coca-Cola in one of the 40-ish “Dividend Kings,” a title reserved for stocks that have maintained a minimum of 50 consecutive years of dividend growth.

Currently, Coca-Cola pays investors a quarterly dividend of $0.485 USD per share. The most recent ex-dividend date was March 14th, with the dividends actually paid on April 1st (your brokerage might receive them slightly later).

For those unfamiliar, the ex-dividend date is crucial as it determines who is eligible to receive the upcoming dividend payment.

To receive a dividend, an investor must purchase and hold the stock before the ex-dividend date; those purchasing on or after this date will not receive the dividend until the next cycle.

Reflecting on the past years, the dividend has shown steady growth: $0.46 in 2023, $0.44 in 2022, and $0.42 in 2021. If trends continue and everything progresses as expected, we might anticipate the dividend rising to $0.50 next year.

Therefore, Coca-Cola’s dividends have grown by approximately 5.2% annually from 2021 to 2024. That beats inflation!

Is Coca-Cola a buy?

I continue to gradually add to my holdings of Coca-Cola and consistently reinvest the dividends.

However, I wouldn’t classify it as a “screaming buy” at the moment, unlike in March 2020 during the COVID-19 market downturn when I aggressively increased my investment.

The primary reason? Coca-Cola’s earnings yield is currently too low for it to be an irresistible buy.

To understand this, let’s think about it in terms of owning a private business. Imagine you own a company that has a forward price-to-earnings (P/E) ratio of 22.3, which is identical to Coca-Cola’s current P/E.

In simple terms, a P/E ratio tells you how many dollars you are paying for every dollar of the company’s earnings.

So, if a company like Coca-Cola has a forward P/E ratio of 22.3, this means that as an investor, you are paying $22.32 for every $1 of Coca-Cola’s expected earnings.

Now, by taking the inverse of the P/E ratio, we arrive at an earnings yield of approximately 4.3%.

Now, consider this yield in comparison to the yield you could achieve by investing in a 10-year U.S. Treasury bond, which currently stands at around 4.5%.

When a company’s earnings yield is lower than what you could earn from a risk-free government bond, it suggests that the stock might not offer sufficient return potential relative to its risk.

So, if you can earn more from a safer investment like a U.S. Treasury bond, it raises questions about the attractiveness of investing in a higher-risk asset like stocks when the return is not proportionately higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has positions in Coca-Cola. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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