Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investing to achieve financial independence through passive income is a common aspiration for many. The idea is to build a portfolio of stocks that steadily increase their dividends each year, keeping pace with inflation and covering monthly expenses. One such example of a dependable dividend growth stock is Coca-Cola, a renowned Dividend King with an impressive track record of 61 consecutive years of dividend payouts.
However, as investors look ahead to the future, the question arises: Is Coca-Cola still a viable option for those seeking consistent income growth? To answer this query, a thorough examination of Coca-Cola's fundamentals and valuation is necessary. Let's find out.
The beverage industry caters to diverse taste preferences, and Coca-Cola, being well aware of this fact, has built an impressive portfolio of over 200 brands, each offering a unique and refreshing experience. With a global presence, these products are available in virtually every corner of the world, making it highly likely that there's a beverage to please every palate. From classic carbonated soft drinks to a variety of juices, dairy, and plant-based alternatives, water, and sports drinks, Coca-Cola's legendary brands include familiar names such as Coca-Cola, Smartwater, Simply, Powerade, Costa Coffee, Dasani, Fairlife, Gold Peak, and Schweppes.
In the second quarter ended June 30, Coca-Cola demonstrated robust financial performance, with net revenue increasing by an impressive 5.7% compared to the previous year, reaching a total of $12 billion. This growth was driven by a favorable sales mix, strong expansion in away-from-home channels, and price increases passed on to consumers. Notably, the company experienced a remarkable 10% growth rate in price/mix during the quarter, further bolstering its revenue. Additionally, the increased sales volume of syrup to authorized bottlers contributed to the company's solid top-line growth during the period. Coca-Cola's continuous efforts to innovate and adapt to changing consumer preferences have allowed it to maintain its position as a leading player in the beverage industry, delighting customers worldwide with a diverse and refreshing array of choices.
Despite Coca-Cola's global sales presence and widespread popularity, certain external factors impacted its net revenue growth in the second quarter. The strength of the U.S. dollar had a notable effect, weighing down net revenue by four percentage points due to unfavorable foreign currency translation. Additionally, the refranchising of bottling operations in Cambodia and Vietnam in recent months contributed to a one-percentage-point unfavorable impact on the company's top line during the quarter. However, even with these challenges, Coca-Cola achieved mid-single-digit net revenue growth, showcasing its resilience and adaptability in the face of market fluctuations.
During the same period, Coca-Cola reported non-GAAP (adjusted) diluted earnings per share (EPS) of $0.78, marking an impressive 11.4% increase compared to the previous year. This growth can be attributed to the company's higher net revenue base and a strategic moderation of total expenses, resulting in a meaningful expansion of its non-GAAP net margin. Additionally, Coca-Cola's share buybacks contributed to a slight reduction in its outstanding share count, further supporting the growth of adjusted diluted EPS and surpassing net revenue growth in the quarter.
As the company looks to the future, its commitment to innovation and new product development positions it favorably to capture a larger market share in the rapidly expanding $1.3 trillion ready-to-drink beverage market. Analysts are optimistic about Coca-Cola's prospects, projecting a solid 6.2% annual growth in adjusted diluted EPS over the next five years. With its diverse product portfolio, global reach, and ongoing pursuit of new opportunities, Coca-Cola remains well-positioned for continued success in the competitive beverage industry.
For income-oriented investors seeking steady returns, Coca-Cola stands out as an appealing choice, offering a higher-than-average dividend yield of 3% compared to the S&P 500 index's 1.5% average. Moreover, the company's commitment to dividend growth is a cherry on top, with projections of annual increases ranging from 5% to 6% in the coming years.
Coca-Cola's prudent dividend payout ratio of approximately 56% is close to its long-term average of 58%. This indicates that the company retains ample capital to pursue strategic initiatives, such as product launches to capture market share, share repurchases, balance sheet improvements, and continued annual dividend growth.
Despite facing a 2.5% decline in share prices year to date, Coca-Cola's forward price-to-earnings (P/E) ratio has fallen to 22.2, just slightly below the non-alcoholic beverages industry average forward P/E ratio of 22.4. As the company's profits are expected to grow, this relatively attractive valuation makes Coca-Cola an appealing long-term buy for income investors seeking to combat the impact of inflation on their retirement portfolios.
With its solid dividend yield, consistent dividend growth prospects, and reasonable valuation, Coca-Cola presents a compelling opportunity for income-focused investors looking to build a resilient and income-generating foundation for their investment portfolios.
As long as the price is above 61.00, follow the recommendations below:
- Time frame: D1
- Recommendation:long position
- Entry point: 61.79
- Take Profit 1: 63.00
- Take Profit 2: 64.00
Alternative scenario:
If the level of 61.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 61.00
- Take Profit 1: 60.00
- Take Profit 2: 59.00
