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Will Coca-Cola Raise Its Dividend in 2020?

Coca-Cola (NYSE: KO) has put together a nearly unparalleled track record of rewarding dividend investors who own its shares. The soft-drink giant has generated huge returns for its long-term shareholders over more than a century, and a considerable portion of those gains have come from the quarterly dividend payments that investors have received over the decades through thick and thin.

In 2019, Coca-Cola celebrated its 57th straight year of higher annual dividend payments. Despite some recent challenges that it's had to address in its fundamental business, Coca-Cola has worked to shore up the threatened parts of its operations while moving forward in new directions to seek growth. Dividend investors hope that those efforts will yield stronger payout gains in 2020 than the modest increase they got in 2019.

Dividend stats on Coca-Cola

Metric Value
Current Quarterly Dividend Per Share $0.40
Current Yield 3.1%
Number of Consecutive Years With Dividend Increases 57 years
Payout Ratio 85%
Last Increase March 2019

Source: Yahoo! Finance. Last increase refers to ex-dividend date.

A slowdown in dividend growth for Coca-Cola

From the perspective of regularly giving investors a bit more cash each year, Coca-Cola has done all the right things with its dividend policy. Shareholders have learned not to expect monumental increases in the quarterly payout most years, but even the more modest mid- to high-single-digit percentage growth that Coca-Cola gave them over much of the past decade has added up to a healthy overall boost. The current $0.40 per-share payout is almost double what shareholders got 10 years ago.

Semi tractor trailer with Coca-Cola bottles painted on the side.

Image source: Coca-Cola.

Yet the rate of dividend growth has slowed in recent years from the 8% to 9% hikes from a decade ago. In 2018, the increase came in at 5.4%, and the boost that Coca-Cola made in 2019 was just 2.6%.

KO Dividend Chart

KO Dividend data by YCharts.

Some investors have been concerned about the headwinds that the beverage giant has faced recently. Demand for its namesake sugary soft drinks has fallen off as consumers have shifted toward more health-conscious options, and competition has remained fierce throughout the industry.

How Coca-Cola could see strong dividend growth

Yet there's reason for optimism about Coca-Cola's future. In its most recent financial report, the company managed to see sales growth accelerate compared to its performance in the recent past, outpacing rival PepsiCo's gains. Among key products has been Coca-Cola Zero Sugar, which represents Coca-Cola's answer to demands for healthier beverages.

At the same time, Coca-Cola is trying to innovate. Despite having made a strategic investment in energy-drink giant Monster Beverage, Coca-Cola is moving ahead with plans for a branded energy drink of its own. The beverage company has also offered up smaller cans, aiming to help calorie-conscious consumers, but also boosting margins for its business.

Some of those innovations will take investment, so Coca-Cola isn't expecting to see any significant earnings gains in 2019. That's making some investors worry that any dividend increase from the beverage company in 2020 might be small, at best.

Look for higher dividends from Coca-Cola in 2020

With signs of faster growth and a legacy of past dividend increases to protect, Coca-Cola is almost certain to boost its dividend in 2020. The big question is whether the company will go with a $0.01 per-share increase or return to its past practice of healthier payout increases.

If earnings don't deliver a positive surprise, then there's a real possibility that Coca-Cola will stick with the smaller boost. Dividend investors should hope for the bigger number, though, in order to maximize Coca-Cola's already impressive dividend yield.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Monster Beverage. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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