E Coca-Cola: A Blue-Chip Dividend King

Coca-Cola (KO) is one of the most popular dividend stocks in the stock market. The beverage giant has grown its dividend for 57 consecutive years and thus it is on the radar of most income-oriented investors. Moreover, after seven consecutive years of stagnant earnings, Coca-Cola seems primed to return to growth mode from next year. Nevertheless, as the stock has climbed to new all-time highs, the big question is whether the stock remains attractive around its current level.

Business overview

Coca-Cola has posted declining revenues and stagnant earnings per share for seven consecutive years. The decline in revenues has resulted primarily from the refranchising of the bottling business in an effort to enhance operating margins and reduce capital needs. However, the stagnation in the earnings per share, which was certainly disappointing, resulted mostly from unfavorable secular trends and poor execution. Consumers have become much more health-conscious in recent years and thus the U.S. consumption per capita of carbonated drinks has fallen to a 30-year low level.

However, Coca-Cola changed its CEO in mid-2017 and now seems poised to return to growth mode. In the second quarter, the company grew its revenue 6% over last year’s quarter thanks to strong organic growth, favorable product mix, and price hikes. It is remarkable that nearly a quarter of the total revenue came from new or reformulated beverages. Moreover, Coca-Cola Zero Sugar posted its 7th consecutive quarter of double-digit volume growth.

Growth prospects

After several years of poor performance, Coca-Cola has exciting growth prospects ahead. While it is already present in essentially every country in the world, it has a much lower market share in developing and emerging markets than it has in developed markets. To provide a perspective, in cold beverages, the company has a 21% market share in developed countries but only an 11% share in developing and emerging countries.

Moreover, Coca-Cola Zero Sugar is likely to remain a significant growth driver for the foreseeable future. Another growth driver will be Costa Limited, which was acquired by Coca-Cola recently. Thanks to this acquisition, Coca-Cola entered an immense global market, namely the coffee business. Costa will offer its expertise in all the aspects of the business while Coca-Cola will leverage the potential of the coffee chain via its numerous product offerings.

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