Should you buy this high-yield beverage stock?

It is rare to be able to buy a business with a good track record and receive a high dividend yield at the same time. Investors usually have to choose between these attractive features. ButCoca-Cola (NYSE: KO)This may not be the case for the investors who are now facing the same situation.

The beverage giant dominates the global industry, but its yield is nearing a post-pandemic high due to a rising dividend payout ratio and a weak share price in 2023.

In general, however, higher yields tend to come with some compromises, both in terms of growth prospects and earnings potential. With this risk in mind, let's take a look at Coca-Cola's dividend payout abovePepsi Cola (NASDAQ resonance code: PEP)and other peers, and whether income investors should still be bullish on this stock today.

Growth is important

Dividend growth is ultimately funded by sales growth and cash flow, both of which are slowing down for Coca-Cola. in FY2023, Coca-Cola's organic sales grew at a rate of 12%, but almost all of that growth came from price increases. For the year as a whole, volume grew by only 21 TP3T.

Price increases in 2024 will not be as promotional as they have been over the past few quarters. This is mainly because inflation has slowed, but also partly because consumers are becoming more price sensitive. Coca-Cola is also facing a slowdown in consumption. As a result, management is forecasting sales growth to halve to around 6% to 7% in 2024.

On the cash flow side, the short-term outlook isn't good either. Coca-Cola is expected to generate $9.2 billion in free cash in 2024, a decline of 5% after growing 2% last year. the dividend could easily continue to climb in the midst of this decline. However, investors should be prepared for more modest dividend growth over the next year or so.

high yield

The short-term financial trends surrounding Coca-Cola have rewarded investors for taking on these high risks. The stock is valued at 5.7 times sales, compared to nearly 7 times sales during the pandemic. As of this writing, the dividend yield on Coca-Cola is 3.11 TP3T, while the dividend yield on PepsiCo is 2.91 TP3T, and the dividend yield on PepsiCo is 3.11 TP3T, while the dividend yield on PepsiCo is 2.91 TP3T.Keurig Dr PepperThe dividend yield is 2.7%.

Holding $5,000 in Coca-Cola stock gives you about $150 in passive income in your first year. The Coca-Cola Company has increased its dividend payout each of the past 61 years, so you can feel confident that the dividend will continue to grow over the next decade, even if sales trends remain sluggish.

If you're looking for spectacular growth, then Coca-Cola stock may not be for you. Peer PepsiCo warned investors last month that consumer spending trends are slowing back to pre-pandemic normal levels, a shift that, combined with declining inflation, will put pressure on sales for the foreseeable future. Coca-Cola faces many of the same challenges, which helps explain why the company's shares underperformed last year.Dow Jones Industrial AverageThe majority of Wall Street professionals expect sales to be flat this year and grow about 5% by 2025. Most Wall Street professionals expect sales to be flat this year and to grow about 5% by 2025.

However, Coca-Cola can still do a lot even with a slight increase in sales, especially considering that its operating margin of 28% of sales is about twice that of PepsiCo. Patient investors can gain industry-leading financial strength at a discounted price while waiting for demand trends to rebound. In the meantime, consider allowing Coca-Cola's quarterly dividends to be automatically reinvested in more stocks to expand your long-term return.

Should you invest $1,000 in Coca-Cola now?

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Demitri Kalogeropoulos does not own any of the shares listed above.The Motley Fool does not own any of the shares listed above.The Motley Fool has a disclosure policy.

Should You Buy This High-Yield Beverage Stock? This post was originally published by The Motley Fool.