The Coca-Cola Co (KO): A Safe Dividend King Trading At Its 52-Week Low

Business Analysis

The Coca-Cola Co (NYSE:KO) has had a rough few years, with sales falling thanks to a secular decline in soda sales. In fact, 2015 marked the 11th consecutive year (1) of declining sparkling drink volumes in North America.

Looking at Coca-Cola specifically, the company’s revenue has declined for three straight years. More recently, Coke’s sales have fallen at a mid-single digit pace for five consecutive quarters.

Source: Simply Safe Dividends

Fortunately for dividend growth investors, management has a three-pronged turnaround plan in motion that could result in solid long-term payout growth and market-beating total returns.

Step one is to sell off its 39 domestic bottling operations by the end of 2017. The logic behind this move is that bottling operations are very low margin and capital intensive, and Coca-Cola wants to instead become a leaner, higher margin company.

In other words, Coke is planning on becoming a purveyor, marketer, and distributor of its core syrups and drink mixes, leaving the actual manufacturing to partners around the globe.

Management believes that by divesting itself of its bottling operations it can achieve phenomenally better profitability, including 27% free cash flow, or FCF, margins. To put that in context, Apple Inc. (NASDAQ:AAPL), one of the highest margin, cash rich companies on earth, has FCF margins around 24%.

Source: Coca-Cola, Morningstar