Will Coca-Cola Stock Raise Its Dividend in 2017?

The Coca-Cola Co Has Been a Solid Dividend Stock

We have all heard about how The Coca-Cola Co (NYSE:KO) stock has been a winning pick for legendary investors like Warren Buffett. But just how much would an investor make if they invested in the beverage giant? Well, taking into account its dividends, Coca-Cola stock returned a staggering 15,526% in the past 50 years. And that’s no misprint.

Most recently, though, Coca-Cola stock hasn’t really been a hot commodity. In the past 12 months—a period where all three major indices in the U.S. stock market soared past their all-time highs—KO stock tumbled 7.5%.

This makes investors wonder what the future holds for Coca-Cola stock. The company has been around for over a century. Will it be able to keep raising its dividends? Let’s take a look.

Headquartered in Atlanta, Georgia, The Coca-Cola Co is one of the largest beverage companies in the world. Around 94% of the world’s population recognizes Coca-Cola’s red-and-white logo. Globally, the company is the number-one provider of sparkling beverages, juices, juice drinks, and ready-to-drink teas and coffees. (Source: “Who We Are,” The Coca-Cola Co, last accessed March 13, 2017.)

The beverage industry might not look very exciting, but it can be great when it comes to generating recurring business—a necessary condition for a company to be a good dividend stock. Every day, people around the world consume 1.9-billion servings of Coca-Cola’s beverages. The company currently has 20 brands that each generate more than $1.0 billion in annual sales.

The best part is, Coca-Cola is willing to return some of its recurring profits to shareholders in the form of dividends. The company started paying quarterly dividends as early as 1920 and has never missed a payment. What’s more impressive is that Coca-Cola has raised its dividend rate every year for the past 55 years. That makes KO stock a “dividend king,” a company that has raised its dividend for at least five decades. (Source: “Investors Info: Dividends,” The Coca-Cola Co, last accessed March 13, 2017.)

Of course, past performance does not guarantee future results. In Coca-Cola’s case, the company does face a few challenges going forward. For instance, as consumers embrace the health and wellness trend, sugary soda may not be that popular. Moreover, because Coca-Cola’s products are sold in almost every country on Earth, the strength of the U.S. dollar could impact the company’s results after currency conversion.

KO Stock Dividend History

The following table shows Coca-Cola stock’s dividend history in the past 10 years.

* Amount of dividend adjusted as a result of the two-for-one stock split

Will Coca-Cola Raise Its Dividend in 2017?

Well, Coca-Cola has been raising its dividend once every year for over five decades. The latest dividend hike came in February 2017, when the company announced a six-percent increase to its quarterly dividend rate to $0.37 per share. Given that the company reviews its dividend policy once a year and has already increased its dividend rate for 2017, it probably won’t change its dividend rate until February 2018.

A more interesting question is, “Is a dividend increase coming soon?” And to answer that question, it involves analyzing the earnings report of the KO company.

Coca-Cola reported full-year earnings on February 9, 2017. In 2016, the company generated net revenues of $41.9 billion, which represented a five-percent decline from the prior year. However, the results were impacted by a foreign exchange headwind of three percent and a headwind from acquisitions, divestitures, and structural items of six percent. Excluding those items that are either one-time or believed to be temporary, organic revenues for the full year actually grew three percent. (Source: “The Coca-Cola Company Reports Fourth Quarter and Full Year 2016 Results,” The Coca-Cola Co, February 9, 2017.)

It’s a similar story for the bottom line. On a reported basis, earnings per share (EPS) declined 10% in 2016, which included a six-percent impact from acquisition, divestitures, and structural items and a nine-percent impact from currency translation. Excluding those, comparable currency-neutral EPS improved five percent.

Both top and bottom line numbers for the fourth quarter managed to beat Wall Street’s expectations. In fact, the company has beaten Wall Street’s EPS estimates in all four quarters of 2016. However, that wasn’t enough to cheer up stock market investors; KO stock slipped three percent in the two trading sessions following the earnings report, although it has since recovered.

Looking at the details, there are two things to note. First, Coca-Cola’s unit case volume increased one percent in full-year 2016. This was driven by a low-single-digit increase in its developed markets, while its emerging and developing markets remain even. Second, operating margin expanded 90 basis points on a reported basis despite changes in foreign currency exchange rates and structural impacts. The company’s comparable currency-neutral operating margin expanded nearly 140 points for the full year. The increase was driven by Coca-Cola’s pricing initiatives, a slightly favorable cost environment, and its productivity program.

Right now, Coca-Cola stock has a dividend yield of 3.52%, which is a decent number given that the average yield of S&P 500 companies is around two percent. But to see whether the company’s dividend is sustainable, it’s important to take a look at KO’S dividend payout ratio.

Last year, Coca-Cola paid $1.40 of dividends per share while earning $1.65 per share. That gives KO stock a dividend payout ratio of nearly 85%, which is a high number that still leaves some margin of safety.

To see whether there will be a Coca-Cola dividend increase in the future, it’s also important to look at the company’s earnings potential. Again, if currency headwinds persist, Coca-Cola’s reported numbers will likely be impacted. Still, for 2017, Coca-Cola expects approximately three-percent growth in organic revenues and a seven-to-eight-percent growth in comparable currency-neutral income before taxes.

Come February 2018, I expect the soda giant to announce a low-to-mid-single-digit increase to its quarterly dividend rate.

What is the Growth Rate of KO Stock’s Dividend?

Coca-Cola stock’s dividends have grown tremendously over the decades. In the past 10 years alone, the company’s quarterly dividend rate (split adjusted) has increased from $0.17 per share to $0.37 per share. That’s a compound annual growth rate of over eight percent. Note that during the past 10 years, our economy went through the Great Recession, a period where many companies saw their business deteriorate. But even a downturn like that did not stop the beverage giant from raising its payout to income investors.

When Will Coca-Cola Pay a Dividend?

Coca-Cola stock pays dividends on a quarterly basis. The four dividends are usually paid in April, July, October, and December every year. In order to receive dividend payments from KO stock, an investor must own the stock before the ex-dividend date. If an investor buys shares of Coca-Cola stock on or after the ex-dividend date, they will not receive dividend; instead, the dividend is paid to the seller. For Coca-Cola stock, the ex-dividend date is usually set to be two days before the record date.

Coca-Cola Dividend in 2017

Coca-Cola last declared dividend on February 16, 2017. The amount is $0.37 per share, which will be paid on April 3, 2017. The ex-dividend date was March 13.

When Will Coca-Cola Stock Split Again?

When a company’s stock price surges to very high levels, it may deter small investors from investing in the company when there is a minimum trading parcel. A higher stock price compared to its competitors could also make a stock appear to be more expensive. That’s why even though stock splits do not change the underlying value of the company, many companies split their shares after a major bull run.

The Coca-Cola Co, which made its initial public offering in 1919, has split its shares on 11 different occasions. There were two-for-one, three-for-one, and four-for-one stock splits. The first was a one-for-one stock dividend, which had the same effect on the number of shares outstanding as a two-for-one stock split. The most recent stock split was a two-for-one stock split completed in August 2012. Note that after all the splits, one share of Coca-Cola stock in 1919 would turn into 9,216 shares today. (Source: “Investors Info: Splits,” The Coca-Cola Co, last accessed March 13, 2017.)

Will Coca-Cola stock split in 2017? Well, after taking into account the lackluster performance of KO stock recently and the relative price levels of its peers, I don’t think the company will split its shares anytime soon.

Will Coca-Cola Stock Increase?

One question that some KO stock investors have is, “Will Coca-Cola stock go up?” And the answer to that really depends on market sentiment. Coca-Cola is a defensive stock. When things are going great, which is what’s happening right now, many investors will be chasing the hottest tickers as their momentum continues to go strong. However, once a correction hits, a common response is to sell the stocks that went up a lot. In those tough times, the strength of value and defensive stocks like Coca-Cola would start to appear.

Here’s the bottom line: KO stock probably won’t shoot through the roof anytime soon. But due to the company’s rock-solid business and generous dividends, it is still a name worth having in an income portfolio.