We recently published a list of S&P 500 Dividend Aristocrats List: Sorted By Hedge Fund Sentiment. In this article, we are going to take a look at where Coca-Cola Company (NYSE:KO) stands against the other S&P 500 dividend aristocrats.
The appeal of dividend growth growth stocks is unmatched. For those considering investing in dividend stocks, growth typically outweighs yield due to the consistent returns they have delivered over the years. Within dividend growth strategies, the dividend aristocrats stand out. Of the approximately 6,000 stocks listed on the NYSE and NASDAQ, only 67 companies earn the title of dividend aristocrats. These companies have consistently increased their dividend payouts for a minimum of 25 consecutive years. They are part of the broader market and are tracked by the Dividend Aristocrat Index.
Also read: 10 Best Dividend-Paying Stocks Under $50
Companies that regularly increase their dividends typically show strong financial health and stability, indicating their consistent profitability. A report by Fortune highlighted that, although it has lagged behind its benchmark, the Dividend Aristocrat Index has surpassed nearly all US active managers over the past decade. Rupert Watts, the head of factors and dividend indices at S&P Dow Jones Indices, discussed dividend growth strategies with the global media organization. Here is what the analyst said:
“Raising your dividend for 25 plus years is no easy feat. These are high-quality companies.”
Dividend aristocrats have delivered impressive returns, surpassing other asset classes. Since the index’s inception in 2005 through September 2023, the dividend aristocrats index has provided a total return of 10.35%, outpacing the broader market’s return of 9.54% for the same period. These stocks are celebrated not only for their dividend growth and steady equity gains but also for their lower volatility. During this timeframe, dividend aristocrats exhibited a volatility level of 15.35%, compared to the market’s slightly higher 16.31%. This indicates that dividend aristocrats tend to have more stable price movements. Their consistent dividend increases over 25 years or more demonstrate their ability to reward shareholders even during tough times, such as the 2007 financial crisis and the 2020 pandemic.
The debate between high yields and dividend growth continues. As of August 19, the High Dividend ETF, which tracks high-yielding companies in the broader market, offers a dividend yield of 4.18%. This yield would have been quite attractive to investors in the past. However, this year the ETF has only returned 4.8%, compared to the market’s 18% return. According to FactSet, investors have withdrawn over $1.1 billion from the fund, which is more than 15% of its $6 billion in assets. This indicates that investors tend to prefer dividend growth over high yields, as high yields are often seen as a sign of financial difficulties. In this article, we will take a look at some of the best dividend aristocrat stocks according to hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A row of factory workers assembling bottles of sparkling soft drinks on a conveyor belt.
The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 68
The Coca-Cola Company (NYSE:KO) is a Georgia-based multinational beverage company that deals in a wide range of beverages, including non-alcoholic beverage concentrates and syrups. The company reported strong earnings in the second quarter of 2024. Its revenue for the quarter came in at over $12.3 billion, up 3% from the same period last year. The company has grown over the years by making strategic acquisitions and responding to changing consumer preferences that are moving away from sugary sodas. Over the last decade, the company has invested significantly in diversifying its product range. These efforts have enabled Coca-Cola to turn around a major revenue decline, increasing net sales from $33 billion in 2020 to $46 billion in 2023.
Though The Coca-Cola Company (NYSE:KO) has a strong balance sheet and its earnings are in place, the company’s larger size poses bigger challenges for it. As of the most recent quarter, the company has over $45 billion in debt and has a debt-to-equity ratio of 1.64. Its cash position is strong, with an operating cash flow of $4.1 billion in the second quarter of 2024 and a free cash flow of $3.3 billion. The company remains committed to fulfilling its obligations to shareholders, but after covering its cash outflows, there is limited capacity to reduce its overall debt. That said, the company has maintained strong operations and income over the years, which should help gradually reduce its debt over time.
One of the best dividend aristocrat stocks, The Coca-Cola Company (NYSE:KO) has been rewarding shareholders with 62 consecutive years of dividend growth. The company’s current quarterly dividend comes in at $0.485 per share and has a dividend yield of 2.81%, as of August 19.
Insider Monkey’s database of Q2 2024 indicated that 68 hedge funds owned stakes in The Coca-Cola Company (NYSE:KO), growing from 62 in the preceding quarter. These stakes are worth nearly $32 billion in total. With 400 million shares, Warren Buffett’s Berkshire Hathaway owned the largest stake in the company.
Overall KO ranks 8th on our list of S&P 500 dividend aristocrats. While we acknowledge the potential of KO as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than KO but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.