Should You Buy The Coca-Cola Company (NYSE:KO) For Its Dividend?

A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. The Coca-Cola Company (NYSE:KO) has returned to shareholders over the past 10 years, an average dividend yield of 3.00% annually. Let's dig deeper into whether Coca-Cola should have a place in your portfolio. See our latest analysis for Coca-Cola

How I analyze a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Is their annual yield among the top 25% of dividend payers?
• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
• Has the amount of dividend per share grown over the past?
• Is is able to pay the current rate of dividends from its earnings?
• Will it be able to continue to payout at the current rate in the future?

Does Coca-Cola pass our checks?

The company currently pays out 137.39% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is not well-covered by its earnings. However, going forward, analysts expect KO's payout to fall into a more sustainable range of 78.83% of its earnings, which leads to a dividend yield of 3.45%. Moreover, EPS should increase to $1.81, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. KO has increased its DPS from $0.68 to $1.48 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock. Compared to its peers, Coca-Cola generates a yield of 3.12%, which is high for Beverage stocks but still below the market's top dividend payers.

Next Steps:

Taking into account the dividend metrics, Coca-Cola ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company's fundamentals and underlying business before making an investment decision. Below, I've compiled three pertinent aspects you should further research:

• 1. Future Outlook: What are well-informed industry analysts predicting for KO’s future growth? Take a look at our free research report of analyst consensus for KO’s outlook.
• 2. Valuation: What is KO worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether KO is currently mispriced by the market.
• 3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.