Can Coca-Cola retain its title as a Dividend King?

Key Terms Explained

Dividend King: A Dividend King is a publicly traded company that has increased its shareholder dividends every year for at least the past 50 years.

Dividend Payout Ratio: The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. It is the percentage of earnings paid to shareholders via dividends.1

Dividend Safety: Dividend safety describes how risky a dividend stock is at a particular moment. Sometimes it is valued numerically and investors can make decisions based on dividend safety score.

The beverage king

A beverage king and a household name, Coca Cola’s solid enterprise history has made it an American symbol. $33.01B revenue and $7.75B earnings was made in 2020, and these were generated from Coca’s versatile product base: from famous drinks like Coke, Sprite, and Fanta, to less well-known ones like PowerAde and Dasani. The giant has strived to form a highly-developed sales network including independent bottlers, distributors, wholesalers, and retailers worldwide, so as to make sure the various brands it owns can gain attention across continents.

Potential danger in Coca’s dividend position?

Being a dividend king may sound incredible already, but Coca Cola actually has been offering much more: it has maintained dividend growth for 59 consecutive years! However, the stories behind it may not be that simple. Since 2010, the company’s revenue has been relatively unstable, peaking at $48B in 2013, and turning downhill to $37.3B in 2019 and $36.41B in 2020.2 Although Coca is still retaining a high profit margin at 22.19% for 2020, the revenue change and plans to ditch 200 beverages from the company’s portfolio after the pandemic is definitely giving shareholders worries about dividend safety.3 

From a dividend growth rate perspective, things may not seem very positive as well. Coca’s dividend growth has been around 6.0% for the past ten years, 3.7% in the trailing 5-years, and 2.5% in the past 3-years. This slowing down can be attributed to product-line adjustments, COVID impacts, and higher debt load. Amount of free cash flow demanded to pay the dividend has also risen to about $7,241M in 2021, which will probably mean a whopping dividend payout ratio of 77%.4

With these said, what is my opinion on Coca’s dividend safety though? Well, Coca Cola has my trust. After all, I don’t really foresee strong challenges to Coca’s near-monopoly status in the beverage industry, at least in recent years, and this company has products for literally every market niche. Admittedly, we will likely see slow dividend growth in recent years, and maybe Coca’s revenue cannot recover very soon, but the giant does have what it takes to remend sales losses during COVID. The dividend king will not give its place away easily. 

Expectations for Coca Cola

To keep its place as a dividend king, what strategies can we expect from Coca Cola? Here are two major predictions:

  • Coca has seen itself succeeding in developing nations before, and they need to hold that advantage. In fact, the company has about 23% volume share in Asia Pacific markets and 28% volume share in Latin America.5 Coca may utilize their reputation to build more brands geared towards local preference. One existing example is Authentic Tea House, which is targeted for Asian markets. While big titles like Coke and Sprite may be sufficient for maintaining a decent amount of local market share, more and more contenders are rising outside the US, so Coca Cola should look out for those. Chinese brands like Nongfu Spring are gaining more local popularity. Probably someday they will come and kick you down the throne!
  • Coca Cola has been putting attention on the hard seltzer as a new area to explore. Their new brand Topo Chico hit shelves earlier this year, and can be a meaningful tryout for the rising alcoholic beverage category. Market size for hard seltzer is expected to flourish quickly, and especially in developing countries. If Coca achieves a good early start, this new product line may become pretty profitable.6

Zhaoji Xu, London School of Economics and Political Science  


[1] Coca-Cola (KO): Dividend Safety, Dividend Power, https://www.dividendpower.org/2021/05/18/coca-cola-ko-dividend-safety

[2] Coca Cola Stock, a 58 Year Dividend Aristocrat, Dividend Scholar, https://dividendscholar.com/coca-cola-dividend-stock/

[3] Coca-Cola Products You’ll See Everywhere in 2021, Mura Dominko, EatThis, NotThat!, https://www.eatthis.com/coca-cola-2021-products-lineup/ 

[4] Coca-Cola (KO): Dividend Safety, Dividend Power, https://www.dividendpower.org/2021/05/18/coca-cola-ko-dividend-safety/

[5] Unit sales volume share of The Coca-Cola Company worldwide in 2020, by region, Statista, https://www.statista.com/statistics/725027/coca-cola-unit-sales-volume-worldwide-region/

[6] Coca-Cola’s Topo Chico Hard Seltzer reveals its 4 flavors, Cortney Moore, FOXBusiness, https://www.foxbusiness.com/lifestyle/coca-colas-topo-chico-hard-seltzer-reveals-4-flavors

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