Coca-Cola HBC (LSE:CCH) is one of the FTSE 100’s best dividend shares and one that sits proudly in my own investment portfolio.
It’s not because the soft drinks business (which is the world’s third-largest Coca-Cola anchor bottler) offers the biggest yields. Indeed, for 2023 and 2024 it carries yields of 3.2% and 3.5%, respectively. Both sit below the 3.7% forward average for FTSE shares.
I own Coca-Cola HBC shares because of its spectacular record of dividend growth. Few UK shares can match the company’s progressive dividend policy that has seen it raise ordinary dividends a whopping 129% over the past 10 years.
Investing in stocks that can pay a sustainable and growing dividend is one of the keys to creating long-term wealth. And latest results on Wednesday from the bottling firm suggest to me that payouts will keep marching higher.
Forecasts upgraded as sales boom
The company’s progressive payout policy is built on the enormous brand strength of its drinks. They give it tremendous cash flows, and allow it to increase earnings almost every year. This provides the ammunition for dividends to rise steadily.
Fresh half-year results indicate that Coca-Cola HBC’s drinks have lost none of their incredible pulling power. Organic revenues soared 17.8% in the six months to June, to €5bn, which meant that operating profit more than doubled year on year to €557.3m.
Consumers may be enduring a cost-of-living crisis right now. But they still buy market-leading labels like Coca-Cola, Fanta and Sprite in huge volumes, even as the FTSE firm hiked prices to offset cost inflation and grow profits. Organic volumes slipped just 1% despite price rises that raised the company’s top line.
The strength of recent trading has taken even Coca-Cola HBC itself by surprise. Today it also upgraded full-year guidance following those solid sales numbers and now expects “mid-teens full-year organic revenue growth” in 2023. An increase in the range of 5%-6% had previously be tipped.
Organic earnings before interest and tax (EBIT) estimates were kept unchanged. Year-on-year growth of 9%-12% is anticipated.
A FTSE 100 bargain stock
Coca-Cola HBC has several weapons that I’m confident will help it keep growing profits long into the future.
Firstly, the company has a tremendous record when it comes to new product rollouts, allowing it to continue growing revenues and keep its brands nice and fresh. The launch of Jack Daniel’s and Coca-Cola, for instance, went down well in several markets during the first half.
The firm also has large exposure to developing and emerging markets that look poised for strong growth. Indeed, soaring wealth levels in its developing regions meant organic sales there rose by almost a quarter in the 12 months to June.
City analysts expect Coca-Cola HBC to grow earnings 63% year on year in 2023 and another 10% next year. This underpins those predictions of further dividend growth over the period. It also means that the firm looks dirt cheap from a price-to-earnings-growth (PEG) perspective.
The shares trade on a forward reading of 0.2, well below the watermark of 1 that indicates a share is undervalued. Changes to laws governing sugar content may pose an ongoing threat to the company. But on balance I think it’s a top share to buy for long-term earnings and dividend growth.
