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

In addition Coke has a very strong balance sheet with manageable debt levels. The company could cover its entire debt load using cash on hand and just 1.1 years’ worth of earnings before interest and taxes (EBIT).

While the high absolute debt levels may initially appear dangerous, keep in mind that all companies operate in different industries, with varying levels of capital intensity. This means we need to compare Coke’s leverage metrics to those of its peers.

As you can see, The Coca-Cola Co (NYSE:KO) has a very strong balance sheet relative to both the other two soda giants, as well as the industry at large. That explains why it has the strongest credit rating, which translates to very low borrowing costs, lower cost of capital, and stronger margins. All of these factors help to further strengthen the fortress-like dividend.

Source: Morningstar, FastGraphs

Dividend Growth Analysis

Our Dividend Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

Coca-Cola has a Dividend Growth Score of 37, indicating that Coke’s dividend growth prospects are slightly below average.

The weak dividend growth score obviously isn’t to do with the company’s payout growth track record, which is fantastic.

Rather the issue is the lack of growth in recent years and the steady increase in the company’s payout ratio.

However, as explained previously, the three-step turnaround plan could help Coke to achieve long-term EPS and FCF per share growth of 6% to 8% CAGR, which would allow it to continue growing its payout at similar levels.

As seen below, Coca-Cola has reliably increased its dividend by 8-9% annually over the last 20 years. The company has raised its dividend for 54 straight years, making it one of the most reliable dividend growth stocks in the market.