1 'Strong Buy' Dividend King to Grab After Q3 Earnings

Valued at nearly $290 billion by market cap, Coca-Cola Company (KO) is one of the biggest beverage companies in the world. It manufactures, markets, and sells nonalcoholic beverages, mainly soft drinks, sparkling water, sports drinks, coffee and tea, and juice-based drinks. It has a number of iconic brands in its portfolio, such as Coca-Cola, Fanta, Sprite, and Minute Maid, which have given Coke nearly unparalleled brand power.

Incorporated in 1886, the company has expanded is headquartered in Atlanta, Georgia, and is well-known for being a longtime investment of Warren Buffett. Through Berkshire Hathaway's (BRK.B) equity portfolio, Buffett holds about 400,000,000 shares of Coke, giving the billionaire a 9.3% stake in the company. At 8.6% of the portfolio, KO is currently the fourth-largest Buffett holding, ahead of energy giants like Chevron (CVX) and Occidental Petroleum (OXY).

Coke is a Dividend King

Coca-Cola has a strong history of rewarding shareholders with dividends, and has earned the title of “Dividend King,” reserved for companies that have raised their dividends for at least 50 consecutive years. 

Specifically, KO has raised its dividend for 62 years in a row, as of its February increase to 48.5 cents per common share. That translates to an annualized payout of $1.94 per share, for a yield of 2.88% at current levels - more generous than the average S&P 500 Index ($SPX) dividend.

In fiscal 2023, Coke paid out $8 billion in dividends, while full-year cash flow from operations totaled $11.6 billion in 2023, up $581 million year over year, and adjusted free cash flow reached $9.7 billion.

KO's Recent Performance

KO stock has become a favorite of income investors, and the stock isn't particularly well-known for its breakout price action. However, in 2024, the shares soared to new record highs, peaking at $73.53 in September.

After this week's third-quarter earnings, however, KO shares pulled back, and are now down more than 8% from that peak.

Coca-Cola's third-quarter results revealed a profit of $2.85 billion, or $0.77 per share, up 4% year over year to beat analysts' estimate of $0.74 per share. Total revenue of $11.85 billion slipped 1%, but topped the market’s $11.60 billion estimate.

Cash flow from operations reached $2.9 billion, while adjusted free cash flow checked in at $1.6 billion. 

For the full year, management is targeting organic sales growth at the top end of its previously forecast 9-10% range. They anticipate adjusted free cash flow of $9.2 billion for the year on adjusted EPS growth of 5-6%.

Despite the stronger-than-forecast results, traders cast a wary eye on lower volumes, with unit case volumes down 1% for the period. Coke boosted prices 10% during the period to offset flagging volumes. Notably, the downturn in KO's quarterly volumes was not as drastic as rival PepsiCo(PEP).

Analysts Say KO is a Strong Buy

After earnings, analysts at Morgan Stanley, Barclays, Bank of America, and Citi were among those who reiterated “Buy” ratings on KO. Among 21 analysts in coverage, the consensus rating is a “Strong Buy.”

The mean price target for KO is $74.76, which implies expected upside of 11% from Thursday's closing price.

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On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.