Looking for dividends? There's certainly no shortage of choices out there. Thousands of stocks pay them to varying degrees.
If you need good, reliable dividend growth from a quality company, however, that's a slightly different story. Only a few dividend-paying names could be considered a rock-solid option for almost everyone's portfolio. Dow Jones Industrial Average component Coca-Cola(NYSE: KO) is arguably your top choice among these prospects. It doesn't just boast an impressive dividend track record -- it's dividend royalty. And there's no reason to think that's going to change at any point in the foreseeable future.
Do you really know Coca-Cola?
You've certainly heard of the organization. Coca-Cola is of course the world's most popular soft drink. And yet, that particular brand is only a small sampling of the company's product lineup. Gold Peak tea, Minute Maid juice, Powerade sports drinks, and Dasani water are just some of the other beverages in the Coca-Cola family. It's got something to sell to nearly everyone's taste.
This is no minor detail either. The world continues to cut back on its consumption of sugary sodas. It's increasingly drinking the aforementioned water, tea, and juice. Customers purchase these drinks regardless of the economic backdrop, too, making the company's top and bottom lines relatively predictable from one quarter to the next.
Except, the company's business may be even more predictable -- and better suited for driving dividend growth -- than you might realize.
Contrary to a common assumption, Coca-Cola doesn't actually do a great deal of its own bottling these days. It's spent several of the past few years selling most of its bottling operations to localized owners, here and abroad. The bulk of the company's income comes through the sale of branded concentrate to these bottlers. These bottlers are of course are expected to manufacture a quality product, but they also benefit from Coca-Cola's proven marketing prowess.
And this matters. See, this particular business model offloads the bulk of any inflation risk onto the bottlers themselves, who cover the costs for things like delivery, facilities, and the manpower needed to run these physical, labor-intensive operations. That's why Coca-Cola's net profits actually went up even though revenue went down following 2017's completion of the sale of its bottling operation.
Perhaps more important, there's more than enough profit to cover the dividend payments being made ... now, and in the future.
Yet that's still not the top reason that income-minded investors would want to own a stake in this iconic company.
Built for perpetual growth
To say Coca-Cola is brilliant at marketing is an understatement. Its advertising program is genius. A combination of lifestyle branding and sales-prompting ads has arguably made it the premier name in the beverage business. Indeed, it's not a stretch to suggest Coca-Cola and several of its other brand names are cultural touchstones. (Branding consultancy Interbrand names Coca-Cola the eighth-best worldwide brand of 2023.) Such iconic brands are of course easier to promote.
There are added benefits to size and scale, though. Those are the wider sharing of operating costs, and sales leverage. It's easier for salespeople to make distribution deals with retailers when they're working with a wide portfolio of products, and when that retailer knows The Coca-Cola Company's brands will always be in demand. See, consumers tend to buy their favorite drinks regardless of the economic environment.
Evidence of this claim lies in the fact that the company's top line was consistently growing before 2015 -- when it began selling its bottling operations -- and after 2017 following the completion of those sales.
This persistent growth benefits shareholders in one clear way. That is, ever-rising revenue translates into ever-rising profits, which in turn supports ever-rising dividend payments. To this end, not only has Coca-Cola paid dividends for decades now, but it has also raised its annual dividend payout in each of the past 61 years. Only a handful of companies can top or match that claim.
These aren't chump-change increases either. The current quarterly payout of $0.46 per share is well up from the payout of $0.28 per share 10 years back, and is nearly triple the quarterly per-share dividend payment of $0.17 being dished out 30 years ago.
This dividend growth, importantly, has outpaced inflation seen within the United States during this stretch.
And that's key. While you can certainly find higher-yielding dividend stocks than the one Coke shares boast right now, without reliable dividend increases, these other stocks lose more and more of their luster as time marches on.
It also doesn't hurt that with or without its dividend the company is a quality brand with proven staying power.
Coca-Cola is a complete package
It's obviously not the only dividend-growth option out there. Dozens of companies have upped their annual payouts for decades now. Plenty of blue chip stocks are growing their dividends faster than inflation is chipping away at their value. Other corporations have been in business for a long time and will remain in business for the indefinite future.
Very few companies offer such a strong combination of all three attributes as Coca-Cola does though. It really is one of those organizations you can buy into and not worry about checking in on for a few years ... or maybe even a few decades.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
