Smart Dividend Portfolio Edition #37: Bubbly Monetization
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Dear Investor,
Welcome to the 37th edition of TipRanks’ Smart Dividend Portfolio & Newsletter.
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Market-Moving News: December 2, 2024
Stocks closed sharply higher during the shortened trading session on Friday, clocking their best post-Thanksgiving Friday session in over a decade. Friday’s rally propelled stocks to notable weekly gains, with the S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) reaching new records. The two indexes gained 1.41% and 2.37%, respectively. The tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) lagged behind their peer indexes, though still notching gains of 1.3% and 0.9% for the week, respectively.
All four major indexes capped their best month in a year, as investors found reassurance in Trump’s pick for his Treasury secretary position. The President-elect chose Scott Bessent, a seasoned hedge fund executive with deep knowledge of global financial systems and currency markets. Investors assumed that Bessent, with his expertise and measured approach, will prioritize economic and market stability. Mr. Bessent has also received a mark of approval from JPMorgan’s CEO Jamie Dimon, who said that he is “a fiscal hawk” and supported the nomination as “positive overall for the economy and the markets.”
All S&P 500’s sectors are flashing bright green year-to-date. However, there has been a change in the market leadership after the former rally driver – the Technology sector – lagged in the past few months, sliding to the third place in the performance table after Financials and Communication Services. The stock rally of 2023 and the first half of 2024 was largely driven by a small number of tech mega-caps. Their enormous capitalizations translated into an outsized impact on SPX, NDX, and Nasdaq indexes. Meanwhile, the DJIA lagged over that period due to the blue-chip index’s low exposure to technology. However, market leadership has broadened beyond this narrow set of stocks in recent months, staging a far healthier backdrop for the bull market’s momentum to continue.
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This Week’s Quality Dividend Stock Idea
The Coca-Cola Company (KO) is an American multinational beverage corporation. It is renowned for its flagship product, Coca-Cola, a sweetened carbonated beverage that has become a cultural icon in the United States and a global symbol of the American ideal. Today, KO is the world’s largest beverage company by market capitalization, offering more than 500 brands across sparkling drinks, juices, water, tea, coffee, and energy drinks in over 200 countries.
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History of Branded Taste
The Coca-Cola Company was founded in 1892 in Atlanta, Georgia, by Asa Candler – an American business magnate, philanthropist, and politician. Mr. Candler purchased the Coca-Cola formula and brand from its pharmacist inventor. Originally marketed as a medicinal tonic, Coca-Cola rapidly transitioned to a mass-market soft drink thanks to Candler’s innovative marketing and distribution strategies. Candler pioneered large-scale advertising campaigns, including newspaper ads, promotional coupons, and branded merchandise, which helped establish Coca-Cola as a household name.
Under Candler’s leadership, Coca-Cola expanded its distribution and adopted the franchised bottling system, laying the foundation for its international success. By the time he sold his stake in the company in 1919 for $25 million, Coca-Cola had become one of the most recognized and profitable beverages in the United States. Throughout the 20th century, Coca-Cola expanded its geographical reach by establishing bottling plants and partnerships worldwide. By the 1920s, Coca-Cola was available in over 50 countries, and by the mid-century, it became a global icon of American culture.
The company has consistently grown its product portfolio through bold innovation. It diversified its offerings by introducing Diet Coke, Coca-Cola Zero, and a variety of sparkling and still beverages. Its most recent product innovations have included different tastes, such as Coca-Cola Spiced, Coca-Cola Plus Coffee, and Coca-Cola Energy. In addition, the company has launched Coca-Cola Creations, a platform of limited-edition flavors blending traditional Coca-Cola taste with unique elements, aiming to engage younger consumers through novel experiences.
Additionally, over the years, Coca-Cola has strategically expanded its portfolio and global presence through key acquisitions. The most recent notable buyouts include Costa Coffee in 2019, marking a significant entry into the global coffee market, and Fairlife in 2020, which expanded its dairy-based beverage offerings. This year, the company has strengthened its bottling operations in Southeast Asia through the acquisition Coca-Cola Beverages Philippines.
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Sweet Business Model
Coca-Cola’s business model, often referred to as the “Coca-Cola System,” is a unique structure that has evolved over time and which has played a critical role in the company’s global success. The company began employing the franchise bottling system as early as in 1899, becoming one of the earliest and most successful adopters of this business model.
Today, KO’s global operations span over 200 countries, supported by an extensive network of bottling partners. The company’s business model primarily involves producing and selling syrup concentrate to licensed bottlers globally. These bottlers, holding exclusive territorial contracts, manufacture the final products by combining the concentrate with filtered water and sweeteners, then distribute them to retail stores, restaurants, and vending machines.
This decentralized approach allowed the company to expand quickly without a need for significant investments. Thanks to the “Coca-Cola System,” by mid-20th century the company had established operations in Europe, Latin America, and Asia. The adaptability of the bottling system to diverse markets ensured rapid growth and resilience, even during economic downturns. By outsourcing production and distribution, Coca-Cola significantly reduced its capital expenditures and operational complexity, focusing resources on branding, marketing, and innovation.
Moreover, Coca-Cola leveraged its bottling partners’ local knowledge to penetrate diverse markets, even in remote areas, making its products ubiquitous worldwide. On the other hand, centralized marketing campaigns and the consistent quality of the syrup concentrate ensured brand recognition and high quality standards.
In some cases, KO proceeds from franchise agreements to outright acquisitions of bottlers. This hybrid approach has allowed it to exert greater control over strategic markets while maintaining partnerships in others, optimizing efficiency and market responsiveness. Coca-Cola’s evolution from a simple syrup manufacturer to a global leader in the beverage industry showcases the strength of an asset-light, partnership-driven model.
With market capitalization of over $276 billion and annual revenues of ~46 billion, Coca-Cola ranks #95 in the Fortune 500 list of largest U.S. companies. Publicly traded on NYSE for over a century, the company’s shares are included in several major stock market indices, such as the S&P 500, the blue-chip Dow Jones Industrial Average, and the large-cap Russell 1000.
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A Stable Giant
Despite the substantial reduction over the past five years, Coca-Cola retains significant leverage on its balance sheet, stemming from growth capital investments, strategic acquisitions, portfolio diversification efforts, and capital structure optimization. However, the company’s significant scale, geographic reach, and strong brand portfolio allow KO to generate strong profitability and cash flows, offsetting any liquidity concerns, should any arise. Given Coca-Cola’s high credit ratings – “A” at Fitch, “A1” at Moody’s, and “A+” at S&P – the ~100% net debt-to-equity ratio is not viewed as a risk to the company’s financial stability.
Coca-Cola’s revenues have grown at a CAGR of over 11.5% in the past three years, a remarkable pace of growth for a consumer-product giant. The top-line expansion was supported by volume recovery and market share gains, reflecting robust execution on brand building and successful product-line innovation. In addition, The Coca-Cola Company maintains robust cash flows, reflecting its strong operational performance and financial management.
Over that period, EPS increased by about the same rate as revenue, reflecting stable margins, no significant impact from financial leverage, consistent cost management, and healthy operational efficiency. Moreover, the company’s quarterly performance is a picture of healthy stability, with EPS increasing at mid to high single digits year-on-year, occasionally performing low double-digit jumps.
This “boring” stability supports KO’s balanced capital allocation strategy, which is aimed at fostering growth while delivering consistent shareholder returns. The key components of this strategy include strategic investments (i.e., organic growth initiatives and acquisitions), debt management and liquidity preservation, as well as shareholder returns.
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Shareholder Returns In Focus
The Coca-Cola Company has a longstanding commitment to paying dividends, aiming for consistent increases over time. It began paying dividends in 1920, shortly after its initial public offering in 1919. Since then, it has established a remarkable record of consistent dividend payments.
Although KO’s current dividend yield of 3.03% is not amongst the highest on the market, it is above the Consumer Defensive sector average of ~2.5%. The company’s pace of dividend increases is also not the fastest out there, with the payouts growing at a CAGR of ~5% in the past decade and expected to continue growing at about the same pace over the next couple of years.
However, it is the stability, consistency, and predictability that are most important in this case, as KO is one of the few stocks that investors can probably pass along to their grandchildren to continue collecting dividends. Coca-Cola has increased its annual dividend for 62 years, which makes it a Dividend King – a title given to companies that have increased their dividends for at least 50 consecutive years. Given the company’s market leadership, strong and stable finances, and commitment to returning value to shareholders, KO is widely expected to continue paying rising dividends for many more years.
On top of its dividend payments, Coca-Cola employs strategic share repurchases as a key component of its capital allocation strategy. The company initiated its share repurchase program in 1984 and has periodically authorized additional buybacks to optimize its capital structure and return surplus cash to shareholders.
In February 2022, Coca-Cola’s Board of Directors announced the resumption of share repurchases after a pandemic-related pause. The company operates under existing share repurchase authorization, with the Board retaining discretion over the timing and amount of repurchases. In 2022, KO’s net share repurchases (after accounting for new issuances) amounted to $0.6 billion. This grew to $1.7 billion in 2023 and expanded once more during the first three quarters of 2024 to reach $3.11 billion.
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Sweet Deal on KO
Coca-Cola’s stock reached an all-time high in September but has given back most of the year-to-date gain afterwards amid global macroeconomic challenges, broad industry headwinds, profit-taking, and other factors. As a result, its year-to-date gain stands at just over 7% (although it still significantly outperformed its main rival PepsiCo).
The stock displayed negative dynamics until mid-November, but since then the trend seems to have reversed upwards. Still, the ~15% decline from its peak has depressed valuations, bringing them closer to the industry averages. Although KO trades at a premium to the broad Consumer Staples sector – as it should, given its size, market share, and financial strength – it comes in at the middle of the valuation scale for its U.S. Beverage industry peers. Moreover, based on future cash flows, Coca-Cola appears to be undervalued by about 30%.
Considering KO’s robust earnings outlook, positive stock momentum, and optimistic price-targets from leading Wall Street brokerages, which on average reflect an upside of ~17% in the next 12 months, this could be a reasonable entry point for this lucrative stock.
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Investing Takeaway
Coca-Cola is a low-risk global beverage leader with an unparalleled brand portfolio and extensive market presence in over 200 countries. The company’s consistent innovation and strategic acquisitions have reinforced its competitive position, enabling steady revenue and earnings growth. Robust cash flows and stable margins underpin Coca-Cola’s strong financial foundation, supporting its long-standing commitment to shareholder returns. Currently trading at a reasonable valuation, Coca-Cola now offers an attractive entry point for long-term income investors. Supported by its market leadership, resilient earnings outlook, and optimistic price targets from analysts, Coca-Cola presents a compelling investment case for those seeking stability, predictability, and stably rising dividends for years to come.
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Dividend Investor Portfolio
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Portfolio News
▣ Kroger Company (KR) is scheduled report its Q3 2024 earnings on December 5th.
▣ The ex-dividend date for BlackRock (BLK) is December 5th. In other company news, according to media reports BlackRock has reached a preliminary agreement to acquire HPS Investment Partners, one of the largest private credit firms with nearly $150 billion under management. For BLK, the deal – valued at about $12 billion – would be another step in strengthening its foothold in the fast-growing private credit market.
▣ The ex-dividend date for Qualcomm (QCOM) is December 5th. In other company news, Bloomberg reported that QCOM’s interest in pursuing an acquisition of Intel has cooled due to the complexities associated with the struggling company’s buyout.
▣ EOG Resources (EOG) has been on analyst’s radar recently, with several leading Wall Street houses – including Morgan Stanley, Mizuho Securities, Raymond James, Truist Financial and others – significantly raising their price targets on the stock amid strategic financial initiatives and operational adjustments.
▣ IBM (IBM) and Amazon Web Services (AWS) have announced an expansion of their collaboration to include scaling the responsible use of GenAI for businesses.
▣ Amgen (AMGN) suffered a stock decline last week after investors and analysts were disappointed by the mid-stage trial results of its experimental weight loss drug, MariTide. During the trial, nondiabetic obese/overweight patients lost an average of 20% of their body weight after a year, missing the analysts’ 25% benchmark. However, some analysts think that MariTide’s “monthly or less frequent dosing,” versus the existing injections that need to be administered weekly, may give it a competitive edge.
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Recent Trades
None at the moment, although we are constantly evaluating stocks for a possible addition to the portfolio. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 3.82% | +9.40% | $4,976.56 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Dec 06, 2024 | Jan 01, 2025 | 2.24% | $5.60 |
| Allianz SE ADR (ALIZY) | May 09, 2025 | May 28, 2025 | 5.67% | $1.49 |
| Amgen (AMGN) | Nov 15, 2024 | Dec 06, 2024 | 3.09% | $9.00 |
| BlackRock (BLK) | Dec 08, 2024 | Dec 23, 2024 | 2.56% | $20.40 |
| Edison International (EIX) | Dec 27, 2024 | Jan 31, 2025 | 4.82% | $3.12 |
| EOG Resources (EOG) | Dec 13, 2024 | Dec 30, 2024 | 3.95% | $3.64 |
| IBM (IBM) | Nov 12, 2024 | Dec 10, 2024 | 3.13% | $6.68 |
| JPMorgan Chase (JPM) | Jan 06, 2025 | Jan 31, 2025 | 2.86% | $5.00 |
| Kroger (KR) | Feb 15, 2025 | Mar 01, 2025 | 2.82% | $1.28 |
| LyondellBasell (LYB) | Nov 24, 2024 | Dec 04, 2024 | 5.27% | $5.36 |
| Philip Morris (PM) | Dec 20, 2024 | Jan 10, 2025 | 6.06% | $5.40 |
| Qualcomm (QCOM) | Nov 29, 2024 | Dec 13, 2024 | 2.25% | $3.40 |
| VICI Properties (VICI) | Dec 20, 2024 | Jan 04, 2025 | 5.19% | $1.72 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
