Are you looking for a balance of above-average dividend yield and reliable dividend payment growth? Join the club. It seems most dividend-paying stocks bring lots of one to the table, but not enough of the other.
There is one such well-balanced name hiding in plain sight, however. Dow Jones Industrial Average (^DJI 0.40%) component The Coca-Cola Company (KO) fits the bill. And it should continue providing this balance of yield and dividend growth indefinitely.
Coca-Cola's dividend pedigree is impressive
It's not a company that needs much in the way of an introduction. Its flagship product's been around since 1886, and has since evolved into a truly global brand. It ranked as market research firm Kantar's single most valuable worldwide food and beverage brand for 2022, in fact. Its red and white swoop logo is recognized everywhere.
More relevant to investors, however, is that the company's also one heck of a dividend payer. Not only has it paid a dividend of some sort every year for the past several decades, it's raised its annual payment every year for the past 61 years.
These haven't been chump-change increases. The current quarterly payout of $0.46 per share -- translating into a yield of 3% -- is more than three times bigger than the quarterly per-share payment The Coca-Cola Company was making 25 years ago. That's inflation-beating annualized dividend growth of 4.6%.
Just as important is the fact that Coca-Cola can afford to pay its dividend with plenty left over to fund more growth. Last quarter's non-GAAP earnings rolled in at $0.68 per share, roughly in line with the year-ago bottom line, and in the ballpark of all its recent quarterly profits. Indeed, the company's always been able to cover its dividend payments, quickly shrugging off occasional economic turbulence.
KO Normalized Diluted EPS (Quarterly) data by YCharts
For the record, the losses booked between 2016 and 2019 reflect one-time costs linked to Coca-Cola's sale of its own bottling operations back to franchisees.
Economically insensitive
Then there's the X-factor that can't be quantified. That is, this is a company in a business that isn't subject to economic downturns. That's a huge deal right now in light of our current economic challenges.
And these challenges are very real. A recent survey by One Technologies indicates half of all U.S. consumers are now either postponing or even outright canceling vacations, citing financial worries as the key reason.
Even so, these people are still in more debt than they've ever been. Americans now collectively owe a record-breaking $986 billion on their credit cards alone, according to numbers from the Federal Reserve, and an increasing number of these borrowers are starting to fall behind on their payments. Delinquency rates on card-based loans now stand at a two-year high of 2.43%, soaring from late 2021's multi-year low of 1.54%, and en route to the peak of 2.69% seen in the first quarter of 2020.
Those are relatively small numbers. By credit card standards, though, these are major red flags.
The thing is, these people aren't buying any less of their favorite beverage despite their growing financial stress. The Coca-Cola Company saw its sales volume (total drinkable liquid) improve to the tune of 3% year over year last quarter, despite slightly higher prices. Last year's total volume grew 5%, barreling through the brunt of soaring inflation as the pandemic wore down.
Chalk it up to the nature of the drinks business and the loyalty to Coca-Cola's brands themselves. In addition to its namesake cola, the company also owns Barq's root beer, Dasani water, Gold Peak tea, Minute Maid juices, and more. These are all powerful brands within their respective product categories. Moreover, Coke's always got something to sell to somebody, smoothing out any potential shifts in consumers' drink preferences.
It really is a no-brainer buy for almost everyone
None of this is to suggest there aren't other similarly great dividend stocks out there. There are.
It's also not to suggest The Coca-Cola Company is the only dividend stock income-minded investors might want to own. It isn't.
Rather, all this is being laid out just to make the point that Coca-Cola shares have the potential to be a dividend pillar for most people's portfolios. In fact, given its blue chip status, it could be considered a no-brainer buy if your goal is -- as it should be for long-term investors -- reliable dividend growth.
