Best Dividend Stock for Next 10 Years

Coca-Cola (NYSE: KO) raised its dividend by 5.4% for the 62nd year in February, reminding investors why it's a smart long-term investment. Given its stock price, the global beverage company now offers investors a dividend yield of above 3%. This article examines Coca-Cola's latest dividend hike, its dividend growth trend, and why the firm is expected to keep raising dividends for years to come.

The Feb. 13 Coca-Cola press release announced its dividend hike. The first quarterly dividend at the higher rate will be paid on April 1 to shareholders of record on March 15. The new quarterly dividend is $0.485, or $1.94 annually. This makes the company's dividend yield 3.2%, more than double the S&P 500's 1.4%.

In a Feb. 20 conference call with analysts, Coca-Cola Chief Financial Officer John Murphy said the record of successive annual hikes shows its "commitment" to its dividend.

It's helpful to know Coca-Cola's latest dividend rise, but it's almost more valuable to look back five to 10 years. This shows company momentum and management's dividend growth commitment. Through the COVID-19 epidemic and its aftermath, which disrupted demand and supply for many industries, dividend growth can illustrate a company's resilience (or lack thereof) to economic instability.

Recently, Coca-Cola's dividend increase has continued despite economic problems. The trailing five-year and 10-year compound average dividend growth rates are 4% and 5%, respectively. This means Coca-Cola's latest 5.4% dividend hike is regular but above average.

Coca-Cola will likely raise dividends in the future, and not simply because management promises dividend growth. More crucially, investors can assess the beverage company's earnings momentum and payout ratio to predict future dividend increases. Fortunately for stockholders, both variables indicate growth potential.

Coca-Cola's 2023 earnings per share jumped 13%, positioning the business for dividend increases. Coca-Cola's 2023 payout ratio was around 75%, down from 80% in 2022. This allows dividend increase in the future. Both variables position Coca-Cola for dividend growth. No wonder Murphy firmly stated in the fourth-quarter shareholder letter, "Related to capital return, we have an unwavering priority to grow our dividend."

Overall, Coca-Cola's bull argument is simple: Although stockholders won't get great long-term gains, the stock has a great risk-reward ratio. The stock gives investors access to a long-term, successful firm.

The stock's future returns may not be high, but shareholders' risk is low. Coca-Cola's latest dividend hike shows why this resilient company is an excellent long-term investment: Dividend increase over the next decade and beyond appears likely for the company.

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