Own Coca-Cola by Sept. 15 to Qualify for the Oct. 1 Dividend. Is the Real Prize Holding Enough Shares for $1,000 in Yearly Passive Income?

There are plenty of ways to generate passive income. You could open a high-yield savings account, or buy certificates of deposit, Treasury Bills, bonds, and more. Owning dividend stocks like Coca-Cola (NYSE: KO) can be particularly appealing to long-term investors because of the combination of quarterly dividends and the upside potential of Coke's share price.

Coke's stock price is up 59% over the last five years. But factor in the reinvestment of dividends, and the total return is 82%. Coke offers a middle ground between pure-play passive income vehicles and stocks that don't pay dividends -- giving investors two levers to pull to unlock potential gains.

Coca-Cola will pay a $0.53 per share quarterly dividend on Oct. 1 to shareholders on record as of Sept. 15. The payment marks Coke's third $0.53 cash payment since raising its dividend for the 64th consecutive year. Based on the current annualized payout of $2.12 per share, you'd need 472 shares -- worth $42,174 at the time of this writing -- to generate $1,000 in yearly dividend income.

Here's what's driving Coke to new heights, and why owning enough shares to generate four figures in annual dividend income matters.

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Coke is in a league of its own

Coke's recession-resistant business model makes it one of the most reliable dividend stocks on the market. But it's the company's solid margins and earnings growth during a challenging inflationary period of strained consumer spending that has caught the spotlight as of late.

KO data by YCharts

Coke's stock price, revenue, earnings per share, and operating margin are all hovering around 10-year highs. Whereas peers like PepsiCo (NASDAQ: PEP) are experiencing sluggish growth and margin pressure due to declining demand for packaged foods and snacks.

Coke's success stems from the elite brand value of trademark Coca-Cola, alternatives like Coca-Cola Zero Sugar, and the development of multiple winning non-alcoholic brands across soda, juice, water, sparkling water, tea, coffee, energy drinks, and even milk through Fairlife.

In its latest quarter, Trademark Coca-Cola experienced its highest volume grown in 17 years -- excluding the post-COVID-19 recovery. Coca-Cola Zero Sugar grew sales by 16% and remains Coke's biggest product innovation in decades. It aims to replicate the taste of trademark Coca-Cola, just without the sugar, whereas Diet Coke offers a distinctly different taste. Coca-Cola Zero Sugar perfectly aligns with consumer preference shifts toward healthier alternatives.

Outside of soda, Coke is producing strong volume growth from Powerade, Fresca, Gold Peak, Simply, and Smartwater -- as well as newer brands like Fairlife. Fairlife's lactose-free ultra-filtered milk offers 50% more protein and 50% less sugar than regular milk. And its milk products and flavored protein shakes offer stark differentiation from Coca-Cola's other beverage categories. Coke bought Fairlife in 2020 and grew it into a billion-dollar brand in 2022. Today, Fairlife is one of Coke's fastest-growing brands. It's yet another example of why investors should view Coke more as a marketing, supply chain, and operations juggernaut rather than a pure-play soda specialist.

Weighing passive income on a long-term scale

Coke's stock price is up 28% year-to-date (YTD) -- making it one of the best-performing stocks in the Dow Jones Industrial Average and handily outperforming the S&P 500's 11.9% YTD gain and the Nasdaq Composite's 13.3% rise. Coke's stock price is outpacing its dividend growth -- pushing the yield to a 10-year low of 2.4%. So investors looking to generate $1,000 per year in annual dividend income would have to invest significantly more in Coke today than a few years ago. The good news is that investors can expect their passive income from Coke shares to grow over time.

Coke's earnings growth supports future dividend raises. Investors buying the stock today will gradually see their yield on cost grow. Assuming 5% annual dividend raises, generating $1,000 in annual dividend income would grow to $1,050 in a year, $1,276 in five years, and more than double in 15 years. Making $1,000 a year in dividend income from a single stock is an accomplishment in its own right. But it's the passive income potential of that investment, paired with the potential for price appreciation in the stock, that is especially appealing to long-term investors.

Berkshire Hathaway's (NYSE: BRKA) (NYSE: BRKB) Coca-Cola position illustrates the power of dividend compounding on a multi-decade scale. Warren Buffett first began buying Coke stock in the early 1990s. The position has increased in value severalfold since, and the yield on cost is now just 65% -- meaning the annual dividend income Berkshire collects from Coke is 65% of what it paid for the shares -- a testament to patience and ownership in holding a position over the ultra-long term.

Coke can anchor a passive income portfolio

Coke has been one of the best-performing consumer staples stocks in the current operating environment due to its portfolio of established and newer brands and operational prowess. These are the traits that long-term investors look for when choosing stocks to buy and hold through periods of market volatility.

Coke's dividend yield has compressed, and its valuation is at multi-year highs. So the stock is no longer a dirt cheap buy. But Coke still has the makings of a foundational dividend stock for value investors -- especially those looking to generate passive income from a recession-resistant company.

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.