Coca-Cola can present traders like me with a rising stream of passive dividend earnings.
I’ve an almost unquenchable thirst for passive earnings. I need to gather an ever-growing stream of passive earnings to assist me obtain monetary independence. That is main me to steadily purchase extra dividend-paying shares to assist fulfill my thirst for earnings.
One dividend inventory I’ve been shopping for these days is Coca-Cola (KO -1.00%). This beverage big is a high holding of Warren Buffett’s firm, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), with a powerful monitor file of paying dividends. This is why I imagine it is an excellent dividend inventory to purchase and maintain.
Picture supply: Getty Photographs.
Dividend royalty
In early 2025, Coca-Cola raised its dividend by 5.2%, marking 63 consecutive years of will increase. This achievement retains the corporate among the many elite Dividend Kings — companies with 50 or extra years of consecutive annual dividend will increase. Coca-Cola pays out greater than $8 billion in annual dividends and has distributed almost $100 billion to shareholders by way of dividends since 2010.
The corporate’s rising dividend has actually added up over the a long time. That is evident within the dividend earnings Berkshire Hathaway collects from Coca-Cola every year. Berkshire Hathaway at present owns 400 million shares, or about 9.3% of Coca-Cola’s excellent shares. This place is value $26.7 billion, making it Berkshire’s fourth-largest holding at 8.7% of its funding portfolio. Berkshire at present collects over $800 million in dividend earnings from Coca-Cola every year. That is notable contemplating Berkshire solely paid about $1.3 billion for the place within the late Eighties and early Nineteen Nineties. The corporate earns extra dividend earnings every year as Coca-Cola raises its dividend cost.
Coca-Cola’s dividend at present yields over 3%. That is greater than double the S&P 500‘s dividend yield, which is close to a file low at lower than 1.2%. At that fee, each $100 I put money into Coca-Cola can generate over $3 of annual dividend earnings that ought to steadily rise.
Loads of pop remains to be left
The enduring beverage firm ought to be capable of proceed rising its dividend within the coming years. Coca-Cola owns a formidable portfolio of beverage manufacturers that generate sturdy and rising money stream. The corporate generated $10.8 billion of adjusted free money stream after capital expenditures final 12 months, excluding the affect of an IRS tax litigation deposition. That gave it a 73% dividend payout ratio, which is comfy for a corporation with Coca-Cola’s sturdy monetary profile. Whereas the corporate expects its adjusted free money stream to be decrease this 12 months at $9.5 billion (excluding a contingent cost associated to its 2020 Fairlife acquisition), that is nonetheless greater than sufficient money to cowl its present dividend stage.
The corporate additional backs its dividend with its sturdy A-rated steadiness sheet. Coca-Cola ended the second quarter with $14.3 billion of money, money equivalents, short-term investments, and marketable securities on its steadiness sheet. The corporate additionally had a low 2.0 instances leverage ratio. That is proper on the low-end of its 2.0x-2.5x goal vary, giving it ample capability to tackle extra debt if wanted.
Coca-Cola’s sturdy money flows and fortress steadiness sheet allow it to proceed investing to develop its enterprise. The corporate spends about $2 billion yearly on capital expenditures to keep up and increase its operations. This reinvestment fee helps Coca-Cola’s long-term objective of delivering 4%-6% annual natural income progress and seven% to 9% annual earnings-per-share progress.
The corporate’s ample steadiness sheet capability permits it to make strategic acquisitions that improve its progress profile. Since 2016, acquisitions equivalent to Fairlife, Costa Espresso, Bodyarmor, and Topo Chico have contributed 1 / 4 of Coca-Cola’s earnings-per-share progress.
Coca-Cola’s mixture of monetary energy and wholesome long-term progress profile places the corporate in a wonderful place to proceed rising its dividend within the years to come back.
A wonderful earnings inventory
Coca-Cola has executed a powerful job rising its dividend through the years. That regular dividend progress has actually paid off for long-term traders, equivalent to Warren Buffett’s Berkshire Hathaway. Coca-Cola is in a powerful place to proceed rising its high-yielding payout sooner or later. That is why I am including to my place to gather much more of Coca-Cola’s steadily rising dividend earnings.
Matt DiLallo has positions in Berkshire Hathaway and Coca-Cola. The Motley Idiot has positions in and recommends Berkshire Hathaway. The Motley Idiot has a disclosure coverage.
