Dividend stocks are great for building a steady extra income. But not every high dividend stock is a wise choice. Often, a high dividend yield is rather a sign that something is going wrong in the company and that the payout will soon have to be reduced.
But there is also the other kind of company that offers a relatively high dividend and is very likely to add more in the future. Coca-Cola shares belong to this rare species. Coca-Cola is one of the few companies that, in my opinion, should not be missing in any depot. And for several reasons!
Strong brand, strong results
For one thing, there is growth. Coca-Cola has been growing for more than 100 years. Of course, growth rates are no longer as high as they were 20 or 30 years ago. But 5 to 10% per year is still realistic. In about ten years, sales and profits can be expected to double on average. Even more important than pure growth, however, is the fact that Coca-Cola only needs to invest very little additional capital for this growth. It is precisely such companies that one would like to have in the depot!
After all, a company that has only a low capital requirement, but still grows continuously and increases its profits, throws more money for the shareholders year after year. Warren Buffett got rich by buying parts of such companies for shares or the entire company.
But let’s get back to Coca-Cola! Thanks to these practically steadily rising profits, Coca-Cola can afford to keep raising the dividend every year. This has been the case for 59 years now. Another dividend increase is decided every February. Currently you get 1.68 US dollars per share. At the current share price of 55.61 US dollars (as of September 10, 2021), this results in a decent return of 3.0%. But of course this is only a snapshot. Because the next dividend increase is expected to be decided as early as next February. And with that, the return will continue to increase.
The Coca-Cola success story continues
And that is the case even in difficult economic times. Coca-Cola has already proven this several times. Because in the past 59 years there have been more than enough recessions, the financial crisis of 2008 and currently the corona pandemic. Coca-Cola has not been spared from the current crisis either, because the group earns a lot of money selling concentrate to bars, restaurants and similar large customers. Since most of the stores were closed for months, a lot of sales have been lost here. In the meantime, however, business has returned to pre-crisis levels and nothing stands in the way of further dividend increases.
The article This dividend stock should not be missing in any portfolio first appeared on The Motley Fool Germany.
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Dennis Zeipert owns shares in Coca-Cola. The Motley Fool has no position in any of the stocks mentioned.
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