Coca-Cola (NYSE:KO) Has Announced That It Will Be Increasing Its Dividend To $0.46

The Coca-Cola Company (NYSE:KO) has announced that it will be increasing its periodic dividend on the 3rd of April to $0.46, which will be 4.5% higher than last year's comparable payment amount of $0.44. 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 Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Coca-Cola's was paying out quite a large proportion of earnings and 80% 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.

Over the next year, EPS is forecast to expand by 32.7%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 63% which brings it into quite a comfortable range.

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 $1.76. This means that it has been growing its distributions at 5.6% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Dividend Growth Could Be Constrained

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Coca-Cola has impressed us by growing EPS at 50% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Coca-Cola hasn't been doing.

Our Thoughts On Coca-Cola's Dividend

Overall, we always like to see the dividend being raised, but we don't think Coca-Cola will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Coca-Cola that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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