Coca-Cola is arguably the most well-known brand in the world. The Coca-Cola Company has been in business for over 130 years and is a global leader in the beverage industry. The company owns and markets five of the world’s top six non-alcoholic sparkling soft drink brands: Coca-Cola, Sprite, Fanta, Diet Coke and Coca-Cola Zero Sugar. Coca-Cola products are known for their taste, distinctive logo, and marketing campaigns that have resonated with people around the globe. The company has a long history of innovation, and its products are enjoyed by billions of people every day
Business Model
The Coca-Cola Company generated 56% of its revenue in 2021 by selling concentrate to bottlers. Under this model, The Coca-Cola Company produces syrup concentrate, which is then sold to licenced independent bottlers, who then combine it with water and sweeteners to form the final product. The finished product is then packed in Coca-Cola-approved containers, such as cans, refillable and non-refillable glass and plastic bottles with Coca-Cola licenced trademarks and sold to retailers or distributors. This system allows The Coca-Cola Company to expand its product reach without investing heavily in manufacturing or distribution infrastructure.
The remaining 44% of Coca-Cola’s revenue in 2021 came from finished product operations that sell sparkling soft drinks and a variety of other finished beverages directly to retailers or distributors. These operations mainly consist of in-house bottling and distribution operations. In specific markets, Coca-Cola also operates non-bottling product operations by selling finished beverages to distributors (e.g., McDonald’s).
The Coca-Cola Company’s gross profit for the financial year 2021 was $23 billion, marking an increase of 19% from the previous year. The company attributed this growth to higher sales volumes and favourable pricing in its key markets. The gross margin for 2021 was 60.3%, up from 59.3% in 2020. Between 2011 and 2021, Coca-Cola’s gross margin remained relatively constant between 62.1% and 59.3%, demonstrating a resilient business model capable of holding steady despite turbulent market conditions
Looking ahead, The Coca-Cola Company is well-positioned to continue its strong performance. The company’s focus on creating value for shareholders is likely to result in further increases in profitability.
Dividend Profile
The Coca-Cola Company is known for rewarding shareholders with dividends, with a long history of increasing their dividends.
Warren Buffett, a long-time shareholder, first invested in Coca-Cola in 1988 at $2.73 (split-adjusted basis) with a yield of about 2.68%. By 2021, Coca-Cola pays out a dividend of $1.68 per share, effectively netting Buffett an initial 61% dividend yield-on-cost – or just over $704 MILLION in dividends.
Although the average payout ratio for Coca-Cola is 70%. Over the last 10 years, the dividend CAGR growth of Coca-Cola stands at a decent 5.98%.
Recently, Coca Cola announced that it would continue to increase its dividend by 5% in February 2022, extending its 60-year tradition of conservative dividend increases. Only six other companies can boast a long track record of increasing dividends besides The Coca-Cola Company.
Business Risk
As society becomes more health conscious, regulatory bodies may require The Coca-Cola Company to put additional labelling and warnings on their products or restrict their marketing and selling.
For example, San Francisco passed a law in 2015 that required soda companies to put a label on their product that reads, “Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay”. This is in response to the growing evidence linking sugary drink consumption to obesity and other health problems.
Coca-Cola has responded to these changes by reformulating its products and changing its marketing strategy. The company has now diversified its product offering to more than 600 different types of beverages, including water, tea, and coffee. It has also invested in advertising campaigns that focus on healthy living. Despite these changes, some public health experts remain concerned about the potential health effects of consuming too much sugar, which could severely impact The Coca-Cola Company’s business in the future.
Final Thoughts
Coca-Cola is one of the most iconic brands in the world. The company has a long history of paying and increasing dividends; it has increased its dividend for 60 consecutive years, making it a Dividend Aristocrat (stocks with 25+ years of consecutive dividend increases).
The company’s diversified product line-up, including sparkling beverages, water, sports drinks, and juices, exposes it to different consumer trends. For any investor looking for a stable company with a track record of weathering economic downturns and other challenges, Coca-Cola might be an outstanding dividend stock to own.