Could Coca-Cola Help Power a Lifetime of Passive Income?​

Investing in dividend stocks and building passive income can reduce the stress caused by market volatility. With dividends, you no longer worry about bear markets, because the only thing that matters is whether the company can sustain its dividend payment.

This brings us to Coca-Cola (NYSE: KO), which has a long record of paying a growing dividend to shareholders. To determine whether it can maintain its payout, we'll look at the company's competitive advantages, dividend record, and potential risks.

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The mark of a lifetime dividend stock

The best qualities to look for in dividend investing are a company that sells something affordable that people will continue to buy during a recession. It's also beneficial to look for strong brands with pricing power, and growth opportunities to sustain earnings and cash flow and increase the dividend over time.

Coca-Cola checks these boxes. It has maintained consistent growth in unit case volume over the last 10 years (the only decline was during the pandemic in 2020). Most of its 13% annualized organic revenue growth since 2015 has come from higher price/mix -- a sign that the company can raise prices without losing demand.

Coca-Cola benefits from geographic diversity. It sells in more than 200 countries, and it owns multiple brands that generate at least $1 billion in annual sales. Its high-margin revenue from manufacturing concentrate syrup allows Coca-Cola to generate healthy profits and free cash flow to support the dividend.

The company's adjusted free cash flow grew 11% to nearly $11 billion in 2024. Analysts expect the company's adjusted free cash flow to reach $13.1 billion by 2027 on $52 billion of adjusted revenue.

Coca-Cola has increased its dividend for 63 consecutive years, making it a Dividend King, which is a company that has increased its payout consecutively for 50 years or more. In 2024, it paid 73% of adjusted free cash flow in dividends -- within its historical payout range -- and those payouts have been growing, although modestly.

The dividend has increased 50% over the last 10 years, 22% over the previous five years, and a modest 2.5% since 2024. The current $0.51 quarterly payment brings the dividend yield to an attractive 2.79% -- more than double the S&P 500 (SNPINDEX: ^GSPC) average.

Growth, risks, and return expectations

Coca-Cola's pricing power, global distribution, and focus on high-margin products should sustain its dividend growth. Its dividend record shows that the company has handled multiple economic recessions just fine.

The main risk to monitor is shifts in consumer preferences, especially for Coca-Cola's sugary beverages. The company has consistently reported growth in unit case volume, but if it ever shows negative sales volume trends, that could be problematic for future dividend increases.

Taking all this into account, this is a solid dividend stock to consider. With analysts projecting about 6% annualized earnings growth, investors shouldn't expect Coke stock to outperform the S&P 500, but it's a great fit for investors looking to boost their income.

John Ballard 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.