This Dividend King With a 64-Year Streak Is Beating the Market

For many investors, the most exciting stocks now are related to either artificial intelligence (AI), quantum computing, or robotics, which are posting triple-digit growth. Beverage giant Coca-Cola (KO) doesn't really fit any of those categories. Yet, with 19% returns year-to-date (YTD), KO has outperformed the broader market this year and has even beaten some big tech names. Coca-Cola has spent decades consistently growing through recessions, inflation, geopolitical turmoil, changing consumer tastes, and countless market cycles, while still rewarding shareholders.

With 64 consecutive years of dividend increases, Coca-Cola has earned its place among the market's elite Dividend Kings. The company is all set to report its second quarter results on July 28. Will another strong quarter push the stock higher this year?

The market knows Coca-Cola as a single cola brand. But over the years, the company has evolved and now operates one of the most diversified beverage portfolios in the world, consisting of soft drinks, water, sports drinks, coffee, tea, juice, value-added dairy, and plant-based beverages, among others.

Coca-Cola has always maintained its earnings stability because of pricing power. Despite hiking prices, consumers continue to buy its products. And this was more evident this year when macroeconomic pressure, geopolitical tensions, and weaker discretionary spending were on the rise. Yet, Coca-Cola reported that it extended its streak of increasing overall value share (the percentage of total industry sales) for 20 consecutive quarters. This means that consumers continue to choose its brands even in a challenging economy and even if prices are hiked.

Interestingly, management also emphasized that growth isn't coming solely from pricing strategy. To keep sales growing while maintaining strong profitability, the company is now combining selective price increases with new product launches, affordable packing options, and market-specific marketing campaigns. In the first quarter, organic revenue increased 10%, comfortably keeping the business on track to meet its full-year guidance. Meanwhile, comparable earnings increased by 18% year-over-year (YoY) to $0.86 per share.

The company's extensive global scale across 200 countries and diversified portfolio are an advantage few competitors can match. Coca-Cola now holds Fanta, Powerade, Minute Maid, Smartwater, Dasani, Fresca, and several other regional brands. It has expanded into more than 600,000 additional retail outlets over the past year alone. Because the company operates across so many markets globally, a temporary weakness in one region is often balanced by strength in other regions.

The only thing that matters to income-seeking investors is whether Coca-Cola generates enough cash to fund and increase its dividend payouts. The company generated $1.8 billion in adjusted free cash flow (FCF) in the quarter. Just as importantly, Coca-Cola maintains a conservative balance sheet, with a net debt leverage at 1.6 times EBITDA, giving it the flexibility to continue investing in its brands while also returning cash to shareholders.

Essentially, the company maintains a sustainable payout ratio of 65.5% while offering a forward dividend yield of 2.5%, which is higher than the market and the consumer staples average. While Coca-Cola acknowledged that commodity prices, particularly tea and coffee, along with geopolitical uncertainty, remain risks, it also assured investors that future earnings will continue growing in 2026.

The company expects 4% to 5% organic revenue growth for the full year, with comparable EPS increasing by 8% to 9%. The beverage giant also expects to generate $12.2 billion in FCF for the year. Meanwhile, analysts predict revenue and earnings to increase by 1.9% and 8.8%, respectively, for the full year. For the second quarter, analysts expect 5% growth in revenue to $13 billion and a 6.9% increase in earnings to $0.93 per share.

The common assumption is companies with long track records of dividend increases are slow-growing businesses. But Coca-Cola challenges that assumption. The company is expanding distribution, launching new products, strengthening digital capabilities, and increasing market share while improving operating margins, generating billions in free cash flow, and growing earnings. This is one of the main reasons it can maintain its six-decade-long dividend growth streak, impressing investors. Probably this is also why it is one of the longest-held stocks in Warren Buffett's Berkshire Hathaway (BRK.A) (BRK.B) portfolio.

And Wall Street forecast KO stock to climb by 6% from current levels, based on its average target price of $88. Furthermore, its high price estimate of $95 suggests a potential upside of 14% over the next 12 months. Overall, KO holds a consensus "Strong Buy" rating. Of the 25 analysts covering KO, 19 rate it as a "Strong Buy," two as a "Moderate Buy," and four as a "Hold."

On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com

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