Coca-Cola's (NYSE:KO) recent earnings announcement showed impressive organic growth and net revenue growth -- up 5% and 8% respectively. After beating on revenue and meeting earnings per share (EPS) estimates, Coca-Cola is showing promise for income investors looking to grab a forward dividend yield of 3.04% in addition to the company's newfound focus on coffee, energy drinks, and alternatives to traditional products.

pour soft drink in glass with ice splash

Image source: Getty Images.

Headed in the right direction

Operating in every country in the world aside from North Korea, Coca-Cola's distribution network is massive. Out of its portfolio of 3,900 beverages, 21 of those beverages each bring in over $1 billion annually in revenue. The CEO of Coca-Cola, James Quincey, noted in the most recent earnings conference call that the company is focusing on healthier beverages containing less sugar and on smaller packaging. This strategy is showing promise, as Coke Zero Sugar's revenue increased 14% year to date, assisting Coca-Cola's overall growth in sales by 3%. 

Quincey is optimistic heading into 2020, with a focus on the newly released Coca-Cola Energy drink in 25 markets. It will break into the United States market in January 2020. Coke also announced the planned launch of canned coffee beverages after purchasing the U.K. coffee brand Costa Coffee for $4.9 billion in 2018 -- making Coca-Cola the second-largest coffee brand globally behind Starbucks (NASDAQ:SBUX). The canned coffee is rolling out in China, Poland, and the U.K. -- three regions where the brand has a strong presence. 

Lastly, Brazil saw double-digit transaction growth of immediate consumption packages year to date -- which Coca-Cola drove by placing over 100,000 coolers into the marketplace. Overall, the global growth of immediate consumption packaged products increased 6 percentage points in the third quarter.

A decent dividend

A company of Coca-Cola's size can have trouble finding growth, but Coca-Cola reported 5% revenue gains in the third quarter in addition to an increase in free cash flow of 41% -- totaling $6.6 billion year to date.

Investors are concerned with the impact of dividends on cash flow, as the payout ratio is 76% based on the fiscal 2019 EPS estimate of $2.11 and an annual dividend of $1.60 per share -- and they aren't wrong to be. If dividends grow while revenue growth remains subdued, the stock will eventually breach a 100% payout ratio, which means that the company would have to look beyond cash from operations to pay the dividend. That's not sustainable in the long run, and so buying Coca-Cola for its dividend right now assumes EPS can grow alongside dividends for the foreseeable future.

With an organic growth estimate of 5% for 2019 and a five-year dividend CAGR of 6.85%, there is potential for a dividend squeeze, which may force management to slow dividend growth if overall performance cannot keep pace. However, income investors should note that upcoming products in addition to strategic growth initiatives are positioning the company for success in the long run.

The long game

There is no better testament to Coca-Cola's strength and potential than the involvement of Warren Buffett -- undoubtedly the most successful investor in United States history. Buffett's company, Berkshire Hathaway, purchased 14.2 million shares in 1988 and now owns 400 million shares valued at $21 billion -- Berkshire's third-largest position. The unwavering stance Buffett has on Coca-Cola should give investors confidence in the future of the company; however, Buffett has noted that the growth for Coca-Cola "doesn't look as good as it did five or 10 years ago." 

Coca-Cola's competitor PepsiCo (NASDAQ:PEP) is paying a forward dividend yield less than Coca-Cola's at 2.85%, but it is a better value, with a price-to-sales ratio of 2.85 versus Coca-Cola's 6.75. Yet even with a more expensive valuation against a large and well-performing competitor, Coca-Cola is strategically placed for success with the recent Costa Coffee acquisition, the energy drink rollout, smaller packaging, and an increased focus on consumer demands. Because of these factors, I think Coca-Cola is a buy for long-term investors.