I’ve been dividend investing for over 10 years, but somehow the iconic Coca-Cola company has yet to enter my dividend stock portfolio. Coca-Cola has been around for almost 130 years and this company has weathered all kinds of storms, such as COVID-19, financial crises, and even the Great Depression.

It's time to see if Coca-Cola (KO) stock deserves a spot in your dividend investment portfolio. Could this be a dividend stock that adds to your passive income?

Coca-Cola Stock

Overall, the performance of Coca-Cola has been strong over the last 52 weeks. In fact, it has been outpacing the S&P 500, as the S&P 500 has been up only 23% over the last 52 weeks.

If you go back into 2017 through 2019, Coca-Cola was not a significantly strong stock by any means. The stock during that time period was fairly flat, so it’s nice to see Coca-Cola doing well right now.

Financially, Coca-Cola’s performance was strong in 2021. Revenue was approximately $3.5 billion higher than 2020. Its earnings have been significantly higher than 2020, and Coca-Cola has also maintained a significantly clean balance sheet. The balance sheet is clean because its long-term debt is down, and the current ratio is 1.50x. Therefore, Coca-Cola is very liquid.

Given that Coca-Cola is doing well financially and the stock price has performed well because of it – is Coca-Cola a dividend stock to buy now?

Coca-Cola Stock Dividend Analysis

As you know, it’s time to review Coca-Cola with our Dividend Diplomat Stock Screener. Here, we focus on 3 main dividend stock metrics:

1. Price to Earnings Ratio (P/E): We look for the price to earnings ratio, and we check if it is lesser than the S&P 500 and any competition.
2. Dividend Payout Ratio: The preferred dividend payout ratio is less than 60%. In fact, we believe the perfect payout ratio is between 40% and 60%.
3. Dividend Growth Rate: Given that we are dividend investing on our way to financial freedom, as we believe dividend income is the best source of passive income, we look at the five-year dividend growth rate. In addition, we review how many years the company has increased their dividend.

1. P/E Ratio: Coca-Cola has a price to earnings ratio, as of Jan. 14, of 25.23. This actually is lower than the S&P 500, which is mid-26 and is slightly lower than Coca-Cola’s biggest competitor – Pepsi (PEP). Pepsi’s P/E ratio is 26. This looks like an ever-so slight undervaluation for this dividend king.
2. Dividend Payout Ratio: Coca-Cola pays a dividend of $0.42 per quarter, or $1.68 per year. Taking $1.68 over $2.43 in forward earnings, this equates to a dividend payout ratio for Coca-Cola of 69%. This is above what we like to see, which is 60% at the highest level.
3. Dividend Growth Rate: Coca-Cola has been increasing its dividend for 59 years. It is not just a dividend aristocrat (25 years), but Coca-Cola is also a dividend king (50 years). However, the growth rate is low for Coca-Cola, as the average increase over the last five years is only 3.72%. The past year saw a one-cent increase from $0.41 to $0.42, or 2.43%.

Lastly, we’ll take a look at the dividend yield. As an investor, you want to know how much owning this dividend stock pays you now. The yield for Coca-Cola is 2.74%, which is approximately 2x the S&P 500.

Is Coca-Cola a Dividend Stock to Buy?

Now that we’ve gone through the metrics, is Coca-Cola a stock to buy for your dividend stock portfolio? There are strong positives about Coca-Cola's stock. The price to earnings ratio is decent and the dividend growth history is impressive, but there are a few downsides.

The negative factors for Coca-Cola come down to the higher dividend payout ratio. This high dividend payout ratio also correlates to the lower dividend growth rate we have seen from the company.

I’ve always wanted to own this dividend growth stock, which is one that Warren Buffett has loved forever, but I have a few reservations right now.

To start, the stock price is just a tad too high. It has outpaced the S&P 500 with a higher P/E ratio. In addition, the dividend growth rate currently does not outpace the rate of inflation, which is at near-highs. The inflation rate is well over 6% to 7% at the moment. Furthermore, I do not see the growth rate increasing in the near-term, based on the high dividend payout ratio.

Therefore, I will not be buying Coca-Cola stock at this time, sadly. I’ll continue to monitor this stock and if the price comes down or if earnings grows faster than the share price, I’ll take another look at the stock.