Dividend Stock Analysis: The Coca-Cola Company

Not so fast, though. Given we are the Dividend Diplomats, what about that side of the equation? Since this is a dividend stock analysis, we have to place them through our Dividend Diplomats Stock Screener. This will help identify if KO is an undervalued dividend growth stock. Our stock screener uses four simple screens to identify the stocks: P/E ratio (valuation), dividend yield (what they currently pay), dividend payout ratio (company’s ability to grow their dividend), and their dividend growth rate/history of increasing their dividend (to validate their practice of increasing their dividend over a period of time).

The Coca-Cola Company Dividend Analysis

  1. Dividend Yield: We will use the current price of $49.09 (12/07). KO’s current dividend is $1.56 per year. This calculates to a dividend yield of 3.18%. This is higher than the S&P 500 average yield (the market, as a whole) and is higher than most savings or short-term CDs out there. I love the yield, that’s all I have to say.
  2. Payout Ratio: Typically, we use a 60% payout ratio threshold for stocks to pass our screener. At $2.08 estimated earnings per share, based on the average of 26 analysts reviewing the company, the payout ratio is only 75%, based on the $1.56 dividend. This is on the higher end on the payout ratio scale we like to see and is definitely in the red zone. Not alarmingly high that a cut will ensue, but not sure how much room they have to increase this dividend going forward.
  3. Dividend Growth Rate And History: Now, they are a dividend aristocrat and tout 55+ years of increasing their dividend streak. Taking this into consideration, the 5-year dividend growth rate is a 6.86%. They have increased their dividend recently by 2 cents per share, per quarter, and have had this same-type of dividend increase for the last 4 years, i.e. increasing 2 cents per share, per quarter. Therefore, they are more in the 5-5.50% dividend growth rate, on average. If they do another 2 cent increase, that represents a 5.1% growth, pushing the payout ratio to 78% on current year expectations or 73% for 2019’s earnings expectations.
  4. Price to Earnings Ratio (P/E): At a current price of $49.09, with expectations of $2.08 in earnings, this equates to a P/E ratio of 23.6. This represents where the S&P 500 is around, currently. I typically like to see below 20 and definitely below the market as a whole. Therefore, this is not showing a sign of undervaluation.
View single page >> |

Disclaimer: I do not recommend any decision to the reader or any user, please consult your own research. Thank you.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.