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Coca-Cola (NYSE:KO) Is Increasing Its Dividend To $0.46

The board of The Coca-Cola Company (NYSE:KO) has announced that it will be paying its dividend of $0.46 on the 3rd of July, an increased payment from last year's comparable dividend. This takes the annual payment to 2.9% of the current stock price, which is about average for the industry.

View our latest analysis for Coca-Cola

Coca-Cola's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Coca-Cola's was paying out quite a large proportion of earnings and 88% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

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Looking forward, earnings per share is forecast to rise by 31.5% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 62% which would be quite comfortable going to take the dividend forward.

historic-dividend
historic-dividend

Coca-Cola Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was $1.02, compared to the most recent full-year payment of $1.84. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. Coca-Cola has seen EPS rising for the last five years, at 49% per annum. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

Our Thoughts On Coca-Cola's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Coca-Cola that investors should know about before committing capital to this stock. Is Coca-Cola not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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