1 Top Dividend Stock for the Next 10 Years | The Motley Fool (2024)

Beverage company Coca-Cola (KO -1.44%) reminded investors in February why it's a good long-term investment when the company increased its dividend by 5.4% for the 62nd year in a row. This increase means the global beverage company provides investors with a refreshing dividend yield of more than 3%, given the stock's current price.

Here's a closer look at Coca-Cola's latest dividend increase, its trend of dividend growth, and why the company is likely to continue rewarding shareholders with dividend increases for years to come.

Dividend details

Coca-Cola announced its dividend increase in a Feb. 13 press release. The first quarterly dividend at the higher rate will be paid to shareholders on April 1 to shareholders of record as of March 15.

The new quarterly dividend amounts to $0.485, or $1.94 annually. This puts the company's dividend yield at 3.2% -- more than double the S&P 500's dividend yield of 1.4%.

As Coca-Cola Chief Financial Officer John Murphy stated during a conference call with analysts on Feb. 20, the extended streak of consecutive annual increases reinforces Coca-Cola's "commitment" to its dividend.

Dividend-growth trends

While it's helpful to know the details of Coca-Cola's most recent dividend increase, it's arguably more useful to look back at how the dividend has progressed over the last five to 10 years. This provides insight into both business momentum and management's commitment to dividend growth. Further, analyzing dividend growth through the challenging period of the COVID-19 pandemic and its aftermath -- a period in which both demand and supply were disrupted for many companies -- helps show a company's resilience (or lack thereof) to economic disruption.

Despite economic challenges, Coca-Cola's annual dividend growth persisted uninterrupted in recent years. Its compound average dividend growth rate over the trailing five-year and 10-year periods is about 4% and 5%, respectively. This suggests the company's latest 5.4% increase isn't too far from the norm but is at the high end of Coca-Cola's typical dividend increases.

Dividend-growth potential

Looking ahead, investors can expect more dividend increases from Coca-Cola -- and that's not just because management regularly tells investors it's committed to dividend growth. More importantly, investors can look at both the beverage company's earnings momentum and its payout ratio to determine whether or not more dividend increases are likely in the coming years. Fortunately for shareholders, both of these factors check out positively as reasons to anticipate further growth.

Looking to Coca-Cola's profitability trends, its 2023 earnings per share rose 13% year over year, setting the company up well for further dividend growth.Meanwhile, Coca-Cola's payout ratio (dividend payments as a percentage of earnings) for 2023 was under 75%, well below its payout ratio of about 80% in 2022. This leaves plenty of room for dividend growth in the coming years.

Both of these factors set Coca-Cola up well for sustained dividend growth. No wonder Murphy confidently told investors in the company's fourth-quarter shareholder letter that, "Related to capital return, we have an unwavering priority to grow our dividend."

Overall, the bull case for Coca-Cola remains simple: Shares likely won't provide spectacular long-term returns for shareholders, but the stock offers an exceptional risk-reward trade-off. Investors who buy the stock will get access to a durable business with a long history of success that's likely to continue for decades.

The stock's returns may not be particularly high in the future, but the risk for shareholders doesn't appear high, either. For these reasons, Coca-Cola's latest dividend increase is a stark reminder of why this durable business is a good long-term investment: The company seems well-positioned to reward shareholders with dividend growth over the next decade and beyond.