History Says This Is the Amount of Yearly Dividend Income a $25,000 Investment in Coca-Cola Stock Could Generate By 2036.
Key Points
Coca-Cola is a Dividend King, with 64 years of consecutive annual dividend increases.
The company has grown its dividend at around a 4.5% annual rate over the past decade.
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Coca-Cola's (NYSE: KO) dividend currently yields 2.4%. At that rate, a $25,000 investment would generate $600 in annual dividend income. That income would rise to $932 per year in a decade, if the company maintains its historical dividend growth rate.
Here's a look at what drives the view that Coca-Cola's dividend income could rise more than 55% by 2036.
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The Coca-Cola dividend math
It's relatively straightforward to figure out how much dividend income you can generate on a $25,000 investment in Coca-Cola stock right now. You multiply that amount by the current yield (2.4%) to get the current annualized dividend income ($600).
It's also fairly easy to calculate what the beverage giant could generate in dividend income a decade from now using its historical dividend growth rate. Over the past decade, Coca-Cola has grown its dividend at around a 4.5% annual rate. Using an investment calculator, we can compute that its annual dividend income would grow from $600 to nearly $932 over the next 10 years if it maintained that growth rate.
That's a very reasonable assumption. Coca-Cola has increased its dividend for 64 consecutive years, including by 4% this past February. That maintained its status in the elite group of Dividend Kings, companies with 50 or more consecutive years of annual dividend increases.
The company is in a strong position to continue growing its dividend. It expects to generate $12.4 billion in free cash flow this year, easily covering its $9.1 billion annual dividend outlay. Meanwhile, the company's long-term growth target is to deliver high-single-digit annual earnings-per-share growth, which should support continue dividend increases.
There's no guarantee Coca-Cola will continue to grow its dividend, let alone at the historical growth rate it's maintained over the past decade. However, given its multi-decade track record and growth ambitions, that's still a sound expectation. It makes Coca-Cola an ideal stock to buy if you're seeking a growing dividend.
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Matt DiLallo has positions in Coca-Cola. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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