Will Coca-Cola Raise Its Dividend in 2018?

The strongest companies find ways to thrive in good times and bad, and Coca-Cola (KO -0.14%) has done a good job of rewarding its shareholders over the decades. With a long-term average annual return of more than 12% looking back 50 years, Coca-Cola has been able to adapt to changing consumer tastes while taking full advantage of its world-renowned brand. Recent challenges have surfaced regarding potential health impacts of sugary carbonated beverages, but for dividend investors, Coca-Cola has still been able to keep up an impressive streak of consistent payout growth.

Let's take a closer look at Coca-Cola and whether its dividend momentum will continue in 2018.

Dividend stats on Coca-Cola

Data source: Yahoo! Finance. Last increase refers to ex-dividend date.

The solid long-term growth in Coca-Cola's dividend

For more than half a century, Coca-Cola has delivered consistent dividend growth to its investors. The power of compounding has been at work with the beverage giant's payout, as even though the company typically keeps its dividend increases to below 10%, the quarterly payment has nearly tripled in the past 12 years. The company's most recent boost came earlier this year, and the $0.02-per-share rise to $0.37 per share represented a 6% increase. That's consistent with past practice, albeit on the smaller side of Coca-Cola's typical range of increases.

Image source: Coca-Cola.

The main challenge for dividend investors, however, is the hit to earnings that the company has taken. When you look at its current payout ratio, the fact that the dividend is 40% higher than Coca-Cola's trailing earnings over the past 12 months is troubling. Yet many of the issues that are hitting the beverage company's bottom line right now are temporary, including losses on asset sales and writedowns of asset values in connection with Coca-Cola's reorganizing efforts. When you account for those one-time impacts, Coca-Cola's ability to sustain its payouts improves, although adjusted payout ratios are still higher than many investors would prefer to see.

KO Dividend data by YCharts.

Is Coca-Cola bouncing back?

Coca-Cola has seen its stock regain some lost ground during 2017, and the catalyst has been signs of improvement in its financial performance. In Coca-Cola's most recent quarterly report in November, the beverage giant said that it is finding ways to adapt to changing consumer preferences. The sugary beverages that worked so well for Coca-Cola for a century have started to give way to healthier options, but after some struggles building momentum, the drink specialist has fleshed out its product lineup with mineral water, juice, tea, and a host of other options.

Coca-Cola also isn't afraid of innovation. Reacting to the rise in demand for spirits, Coca-Cola recently came out with a line of premium mixes that customers can use to create various cocktails, and some believe that the beverage giant might make a more direct move toward creating adult-oriented drinks in the near future.

What's ahead for Coca-Cola's dividend in 2018?

Finally, refranchising efforts have been progressing, and although they've created a short-term hit to sales, they've also helped to boost profit margin figures. Coca-Cola hopes that in the long run, the move will help it be more asset-light, allowing it to pivot more quickly to changing consumer preferences. That said, Coca-Cola has gone back and forth between franchised and in-house bottling operations, so it remains to be seen whether this latest episode will last or whether investors should expect a switch back several years into the future.

Coca-Cola has proven over the past 55 years that it likes to deliver dividend increases, and the odds are strong that the beverage giant will make it 56 years in a row in 2018. With those following the stock expecting earnings to rise toward the $2-per-share mark in the coming year, another 6% boost to $0.39 per share on a quarterly basis would give Coca-Cola a payout ratio of about 80%. That's not ideal, but it would give the company a solid foundation on which to build future growth both in earnings and in dividends.