Will The Coca-Cola Company (KO) Help You Retire Rich?

With those factors in mind, let’s take a closer look at Coca-Cola.

Factor What We Want to See Actual Pass or Fail?
Size Market cap > $10 billion $169 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 4 years Pass
Free cash flow growth > 0% in at least four of past five years 4 years Pass
Stock stability Beta < 0.9 0.50 Pass
Worst loss in past five years no greater than 20% (24.1%) Fail
Valuation Normalized P/E < 18 22.97 Fail
Dividends Current yield > 2% 2.7% Pass
Five-year dividend growth > 10% 8.4% Fail
Streak of dividend increases >= 10 years 50 years Pass
Payout ratio < 75% 50.9% Pass
Total score 7 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Coca-Cola last year, the company has held onto its seven-point score for the third year in a row. The stock has managed to do a little better, picking up about 10% over the past year.

The beverage business involves a tale of two markets right now. Domestically, the mature market has made it extremely difficult for companies to find solid growth. PepsiCo, Inc. (NYSE:PEP) managed to report a 2.5% increase in sales for its PepsiCo Americas Beverages unit by increasing spending on marketing and adding new products, but that growth figure includes some emerging-market exposure in Mexico. Meanwhile, Dr Pepper Snapple Group Inc. (NYSE:DPS) reported volume declines of 1% in its most recent quarter and warned that 2013 profits would come in below analyst expectations.

Internationally, though, the race is on to capture new markets. Both Coke and Pepsi are working hard to get into countries like India, where a rising middle class is poised to give the companies their best shot at building their customer base and encouraging beverage consumption. Yet in China, Coke has hit a wall and suffered a 4% decline in volume in the fourth quarter.

In Coke’s most recent earnings report, one big worry was the fact that gross margins are at their lowest levels in the past decade, with rising commodity costs squeezing profits. Weakness in Europe was to be expected, given the economic problems there, but the company nevertheless needs to find ways to overcome those headwinds by exploring new avenues for growth.

For retirees and other conservative investors, a half-century of steadily increasing dividends has enriched long-term shareholders immensely. Despite Coca-Cola’s growth challenges, its cash flow looks set to continue producing rich payouts well into the next half-century.

The article Will Coca-Cola Help You Retire Rich? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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