When it comes to dividend investing, we could do worse than the beverage giants The Coca-Cola Company (NYSE:KO) And PepsiCo (NASDAQ:PEP). Both companies have two key characteristics that dividend investors look for: predictability and high returns.
Coca-Cola and Pepsi are two of the most predictable dividend payers on the market. Both companies have been paying and increasing their dividends for over 50 years (61 years and 51 years respectively), earning them the prestigious title King of dividends.
Coca-Cola and Pepsi are also both considered to have high-yielding dividends. an efficiency it is the amount that investors get back relative to the value of the investment. Coca-Cola’s yield is over 3%, while Pepsi’s is just below. But as the chart below shows, both companies’ returns are more than double the industry average. S&P500.
However, if there is a problem with Coca-Cola and Pepsi as dividend investments, it is in their ability to to grow their dividends.
In February, Coca-Cola announced an increase in its dividend of approximately 5%. For its part, Pepsi’s latest increase (also announced in February) was better at 10%. As a result, their dividends are increasing, but it is legitimate to wonder whether the increases in the coming years will be as significant.
Many investors look at a company’s cash flow and compare it to dividend payments to get an idea of how much a dividend can grow over time. In Coca-Cola’s case, the company this year expects full-year free cash flow of $9.2 billion, down slightly from 2023. But it paid $8 billion in dividends in 2023 and just increased its dividend by 5%. Therefore, future increases could be modest as its dividend eats up much of its current cash flow.
Pepsi is in a similar situation. It doesn’t talk about free cash flow in its earnings reports. But examining traditional profitability indicators reveals a comparable situation. In 2024, the company plans to pay dividends of $5.06 per share. By comparison, it expects $8.15 in earnings per share (EPS) this year. Therefore, it plans to distribute 62% of its profits as dividends this year, leaving some room for future increases. But dividend increases likely won’t outpace EPS growth.
Dividend growth is important for investors with longer time horizons. That’s why investors might want to give dividends to the third-largest beverage company, Dr Pepper neat (NASDAQ:PDK)a look today.
Could Keurig Dr Pepper be a dividend growth action?
With its 2.6% dividend yield, many dividend investors will ignore Keurig Dr Pepper stock and buy shares of Coca-Cola or Pepsi instead, given the higher yields. However, Keurig Dr Pepper has increased its dividend at a faster rate over the past five years, and I think it can do it again.
Keurig Dr Pepper just reported its financial results, and its profits are finally rising after years of disappointing progress.
Over the past five years, Keurig Dr Pepper’s gross profit growth has outpaced revenue growth, which is a good thing for…
