1 Magnificent Dividend Growth Stock That Could Soar 20% in 2025, According to a Couple of Wall Street Analysts

Whether you're seeking a growing source of income or long-term gains, Wall Street thinks now is a good time to reconsider the world's best-known beverage company.

Shares of Coca-Cola (NYSE: KO) have fallen by about 15.5% from a peak they reached last September. Investment bank analysts who follow the business closely think it's in better shape than its stock price suggests.

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On Monday, Jan. 7, Michael Lavery at Piper Sandler initiated coverage of the beverage giant, with an overweight rating and a $74 price target. Lavery's new target implies a gain of about 20% from recent prices. On Tuesday, Jan. 8, TD Cowen upgraded its rating on Coca-Cola from hold to buy with a $75 price target.

Wall Street might be excited about Coca-Cola stock, but that doesn't necessarily make it a smart buy for your portfolio. Let's weigh some of the reasons it's been beaten down against the reasons Wall Street's bullish to see if it's right for you.

Why Coca-Cola's down

Shares of Coca-Cola have been under pressure since the company's CEO, James Quincey warned investors about "a challenging operating environment" in China, during the company's third-quarter earnings call.

During the third quarter, unit case volume from the entire Asia-Pacific region fell 2% year over year. Unfortunately, Asia-Pacific isn't the only region that declined. The company also reported third-quarter unit case volumes that shrank by 2% year over year from operations in Europe, the Middle East, and Africa.

In addition to slightly declining case volume, the past few months have been generally rough for reliable dividend stocks. Markets expecting a combination of economic growth, higher inflation, and rising debts pushed yields on 10-year Treasury notes up by nearly a full percentage point since Coca-Cola stock peaked in September.

KO data by YCharts

Coca-Cola's dividend program is about as reliable as dividend programs get, but it can't hold a candle to securities backed by the U.S. Department of the Treasury. When Treasury yields rise, stocks like Coca-Cola become a little less attractive.

Investors have been extra-sensitive about Coca-Cola's performance lately because its dividend doesn't leave much room for error. Over the past 12 months, Coca-Cola distributed dividend payments totaling $8.1 billion. Management only expects to report $9.2 billion in free cash flow in 2024.

KO Dividend data by YCharts

Over the past five years, Coca-Cola has only been able to raise its payout by 18.3%, which is less than the pace of inflation over the same period. In other words, the company's long-term shareholders are receiving lower payments now than they were a few years ago, once adjusted for inflation.

Why Wall Street's bullish for Coca-Cola stock

Overall third-quarter unit case volume may have declined, but it didn't stop Coca-Cola's business from growing. Third-quarter organic revenues, which ignore the negative effects of a stronger dollar, rose 9% year over year.

China aside, rising incomes in emerging markets could be a tailwind. With internationally well-recognized beverage brands, there's a good chance Coca-Cola can keep growing in terms of sales and volume over the long run.

The past few months weren't the first time concerns about volume losses pushed down Coca-Cola's stock price, and it won't be the last. A dividend payout that keeps moving in the right direction could make holding on through the volatility a breeze.

Last February, Coca-Cola raised its dividend payout for the 62nd consecutive year. At recent prices, the stock offers a 3.2% yield that's rising, albeit slowly.

Time to buy?

Investors seeking rapid dividend growth or high yields up front probably want to keep looking. That said, Coca-Cola's dividend growth track record is long because its brands provide a valuable and durable advantage over the competition.

Rapid payout raises aren't likely, but, through the strength of its brands, Coca-Cola could continue raising its dividend faster than the Federal Reserve's 2% annual inflation target for at least the next decade. For income seekers with a very long time horizon, taking advantage of Coca-Cola's beaten-down stock price could be a smart move.

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Cory Renauer 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.