The Smartest Dividend Stock to Buy With $1,000 Right Now

You might hear about people living off their dividends, but that's not the reality for most. However, you shouldn't get discouraged and avoid making investments. After all, receiving regular dividends can reduce a stock's volatility and produce a nice total return when added to capital appreciation.

Small investors can purchase dividend stocks and enjoy the benefits of regular payouts. The key isn't to wait until you have a large sum. Rather, pick a sum that you're comfortable investing.

While shares of dividend-paying companies tend to do well over time, stock selection matters, naturally. For as little as an initial $1,000, you can invest in Coca-Cola (NYSE: KO) shares. Here's why that should prove to be a sound investment.

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Regularly increasing payouts

Coca-Cola shareholders have gotten used to receiving higher dividends each year. That's because the board of directors has raised the payout for an astonishing 64 straight years. That means the company has boosted dividends in every conceivable economic situation imaginable, including hyperinflation, stagflation, and recessions (including the Great Recession years).

That means the company belongs to a group called Dividend Kings, which consists of companies that have raised dividends for at least 50 consecutive years. Its most recent increase came earlier this year, when Coca-Cola boosted the quarterly payout by a solid 4% to $0.53 a share.

When companies increase dividends, it's typically a positive sign, indicating management's confidence in the future. Notably, companies typically loathe cutting payouts. Coca-Cola's financials back up its ability to fund payments.

First-quarter revenue grew 10% year over year, driving a 15% increase in diluted earnings per share. Both figures have been adjusted to remove foreign-currency translation effects and the effect of acquisitions and divestitures.

The strong earnings growth means it can comfortably pay dividends. Coca-Cola's payout ratio, or dividends compared to earnings, is 65%.

Relatively high yield

The stock also has an attractive dividend yield, or the annual dividend divided by the share price, particularly compared to the overall market. Coca-Cola's shares have a 2.5% yield based on this year's higher dividend rate.

You can find others with higher yields, but those companies might not be able to sustain the current dividends. Besides, Coca-Cola has a much greater yield than the average large-cap stock, based on the S&P 500 index. The index has a 1.1% dividend yield.

For dividend investors, the combination of a market-beating yield and regular increases makes the stock a compelling opportunity for dividend-seeking investors.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.