Tags: coca | cola | dividend | stock

Why Coca-Cola Might Be the Dividend Stock Your Portfolio Needs

Why Coca-Cola Might Be the Dividend Stock Your Portfolio Needs
(Alexandr Kornienko/Dreamstime)

By
Wednesday, 23 October 2019 04:11 PM Current | Bio | Archive

The U.S. economy is still in a good position, as unemployment is at multi-year lows, while consumer spending continues to rise. However, due to the trade war and economic slowdown in major international markets, such as Europe and China, it is possible that the current economic expansion in the U.S. comes to a halt in the near future.

In that case, companies that are not as vulnerable to recessions would very likely outperform other cyclical industries. As a result, defensive stocks are a solid choice for investors that worry about a worsening of economic conditions.

For example, Coca-Cola (KO) offers stability during recessions, an above-average dividend yield, and extremely reliable dividend growth. Coca-Cola’s dividend is highly secure for the foreseeable future, even if the global economy enters recession.

Company Overview And Recent Results

Coca-Cola has evolved into the top non-alcoholic beverage company in the world during its 130+ year history. Coca-Cola, unlike many of its industry peers, is a pure-play beverage company. That said, it is highly diversified within beverages, as it owns a wide array of brands across different sub sectors of the beverage industry including soft drinks, mineral water, juice, dairy, plant-based drinks, sports drinks, energy drinks, and more. All in all, Coca-Cola sells more than 4,000 different products across the globe, with Coca-Cola, Sprite and their diet variants being the most important.

Coca-Cola has released its most recent quarterly results on October 18, announcing organic sales growth of 5% during the third quarter. This was not only a quite strong pace of growth compared to the recent past, but also more than what the analyst community had expected. Growth was broad-based geographically, with the strongest performance achieved in Latin America. A strengthening dollar remains a headwind for Coca-Cola, but the company nevertheless managed to grow its earnings-per-share to $0.56, which was in line with analyst estimates.

In total, the third quarter was a surprisingly strong quarter for Coca-Cola, during which the company grew organic revenue by 5% year-over-year.

Strong Dividend And Compelling Recession Performance

Coca-Cola has delivered consistent earnings growth over the last several decades, although growth has slowed down to some degree in recent years. We nevertheless believe that Coca-Cola should be able to grow its profits further over the coming years. We base this on Coca-Cola’s strong position in the global beverage market, which will continue to grow, and especially on Coca-Cola’s potential in growth segments such as ready-to-drink beverages and hot beverages, where Coca-Cola should be able to expand its market share meaningfully over the coming years.

Coca-Cola’s growth will also not be entirely dependent on the strength of the global economy. Consumer products such as Coca-Cola’s beverages are not expensive, thus consumers normally don’t scale back their beverage consumption during times when the economy is weak. Coca-Cola has performed excellently during the last financial crisis, as it was actually able to grow its earnings-per-share by 17% in 2008 with just a modest 3% drop in 2009.

We believe that future recessions will not have a large negative impact on Coca-Cola’s business either, as consumers will typically scale back their spending on luxury consumer products such as electronics or appliances rather than soft drinks or bottled water.

Coca-Cola As A Defensive Income Investment

The strong recession resilience makes Coca-Cola a favorable pick for defensive investors, especially as its dividend yield is at an above average level, which provides some additional stability during stock market downturns. Coca-Cola’s current dividend yield of 2.9% is more than one and a half times as high as the broad market’s dividend yield, which makes Coca-Cola a favorable pick for income investors.

And, Coca-Cola’s track record of more than 50 years of annual dividend increases is another positive for long-term investors that seek rising dividends during all economic environments. We believe that the company should be able to grow its dividend at a mid-single digits rate going forward, which could make it attractive for dividend growth investors, even if a recession occurs.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.
 

© 2020 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
BenReynolds
The U.S. economy is still in a good position, as unemployment is at multi-year lows, while consumer spending continues to rise. However, due to the trade war and economic slowdown in major international markets,...
coca, cola, dividend, stock
687
2019-11-23
Wednesday, 23 October 2019 04:11 PM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved