Promising Dividend Increase Stock, Predicted by Several Wall Street Experts, to potentially surge by 20% by 2025
Rewritten Article:
Are you considering investing in the world's most popular beverage company or searching for a long-term income source? Wall Street seems to think it's an excellent time to reconsider investing in Coca-Cola. Despite a 15.5% drop from its peak last September, analysts believe the company is in better shape than its current stock price suggests.
On Monday, January 7, Piper Sandler's Michael Lavery transitioned his coverage of the beverage giant, giving it an overweight rating and a $74 price target. This suggests a potential 20% gain from recent prices. The next day, TD Cowen upgraded its Coca-Cola rating from hold to buy, setting a $75 price target.
However, just because Wall Street's excited about Coca-Cola stock, doesn't mean it's an ideal addition to your portfolio. To determine if it's the right fit, let's weigh its decline against the reasons supporting Wall Street's enthusiasm.
The Slump in Coca-Cola
Coca-Cola's shares have been under pressure since its CEO, James Quincey, warned investors about a challenging operating environment in China during the company's third-quarter earnings call. During the third quarter, the entire Asia-Pacific region's unit case volume fell 2% year over year. Unfortunately, Asia-Pacific wasn't the only region that saw a decline – European, Middle Eastern, and African operations also reported third-quarter unit case volumes that shrank by 2%.
Moreover, the reliability of Coca-Cola's dividend program, as attractive as it might be to some investors, pales in comparison to Treasury-backed securities. As a result, gains from 10-year Treasury notes pushed up by nearly a full percentage point since Coca-Cola stock peaked in September have made Coca-Cola stocks less desirable.
Ultimately, investors have grown more cautious with Coca-Cola's performance due to its limited flexibility to improve its dividend payouts. Over the past 12 months, Coca-Cola has distributed dividend payments totaling $8.1 billion. Management only expects to report $9.2 billion in free cash flow by 2024. Despite the company's history of dividend growth, this represents a small increase of only 18.3% over the past five years, which is less than the pace of inflation over the same period.
Wall Street's Endorsement
Even though third-quarter unit case volume decreased, Coca-Cola's business continued to thrive. Organic revenues, which exclude the impact of foreign currency, grew by 9% year over year during the third quarter. China, despite its challenges, plays a smaller role in the company's overall growth compared to its strong presence in emerging markets.
Coca-Cola has weathered volatility in the past and most likely will again. During the past few months, volume losses prompted concerns about the company's stock price, but Coca-Cola's dividend payout has consistently moved up, making the stock's volatility a bit more manageable for investors seeking dependable dividend income.
In February 2023, Coca-Cola raised its dividend payout for the 62nd consecutive year. Although the dividend yield is currently only 3.2%, it has displayed consistent growth and is likely to rise slowly with time.
Time to Invest?
Investors seeking high dividend yields or rapid dividend growth may want to look elsewhere. However, Coca-Cola's track record of dividend increases and strong brand recognition makes it a wise choice for long-term income investors.
Although rapid payout increases aren't likely, Coca-Cola's internationally recognized brands could support growth in the long run. With a strong innovative culture, commitment to sustainability, and underserved markets, the company has potential for steady growth. Plus, its aggressive pricing strategy demonstrates its resilience in the face of inflationary pressures.
In short, Coca-Cola's wide-reaching brand recognition, solid balance sheet, and attractive valuation make it a long-term income opportunity for investors seeking dependable dividend income and slow but consistent growth.
- Given the bullish sentiments from analysts like Michael Lavery of Piper Sandler, who recently gave Coca-Cola an overweight rating with a $74 price target, introducing more Coca-Cola stocks into one's finance portfolio could potentially yield a 20% gain.
- Despite the 15.5% drop from its peak last September, the finance sector remains optimistic about investments in Coca-Cola, as its organic revenues saw a 9% growth during the third quarter, despite decreases in unit case volume in certain regions.
- While the dividend program of Coca-Cola might be appealing to some investors, it may not offer the same returns as Treasury-backed securities due to its slower growth rate in dividend payouts compared to inflation over the past five years.
- The increased volatility of Coca-Cola's stock price may deter some investors seeking fast growth, but its consistently rising dividend payments, strong brand recognition, and commitment to sustainability make it an attractive option for long-term income investors seeking steady dividend income and slow but consistent growth.