The company faces a slow paradigm shift from a fast food culture to a more health conscious one. Future growth will most likely come from product and menu innovation rather than from outright geographical expansion.
The beverage king
Global beverage giant The Coca-Cola Company (NYSE:KO)sells “sparkling” beverages such as its namesake The Coca-Cola Company (NYSE:KO) as well as Sprite and Fanta. It also sells a number of well known “non-sparkling” beverages such as the Minute Maid juice line, Gold Peak tea, and Dasani bottled water.
Last year, The Coca-Cola Company (NYSE:KO) grew its revenue and free cash flow 3% and 20% respectively. Cash came in at 41% of stockholder equity. Long-term debt stood at a low 44% of stockholder equity. Return on equity came in at 27%.
It raised its dividend every year since 1963, an amazing 50 year run. Last year the company paid out 57% of its free cash flow in dividends. Currently the company pays $1.12 per share per year and yields 2.7% as of this writing.
The company currently faces headwinds from faltering global economics and a slow shift in consumer preference. Recession in Europe and market saturation in North America caused unit case volume to decline 4% and 1% respectively in those areas in the most recent quarter.
People increasingly favor healthier non-sparkling beverages versus its soda offerings. Its sparkling volume remained flat in The Coca-Cola Company (NYSE:KO)’s most recent quarter while its non-sparkling unit case volume increased 6%.
On the bright side The Coca-Cola Company (NYSE:KO) continues to make robust inroads into the emerging markets such as Thailand and India, which grew volume 24% and 18% respectively.
Future fundamental and dividend growth will come from emerging markets and sales in non-sparkling beverages. The Coca-Cola Company (NYSE:KO)’s vast distribution infrastructure will allow this company to profitably sell its products cheaply.
Conclusion
Look for these companies to utilize their vast resources to create new products and profitably sell them at low prices in response to ever-changing consumer demands. This will grow top and bottom lines, providing fuel for future dividend growth.
William Bias owns shares of Coca-Cola and McDonald’s. The Motley Fool recommends Coca-Cola, McCormick, and McDonald’s. The Motley Fool owns shares of McDonald’s. William is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 3 Dividend Aristocrats for Your Portfolio originally appeared on Fool.com is written by William Bias.
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