1 dividend growth stock I just can’t ignore

This FTSE 100 company’s dividend has a compound annual growth rate of just over 10% — here’s what I‘d do about the stock now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When it comes to assessing growth prospects, a stock’s dividend record can be a decent place to start.

Take Switzerland-based bottler of Coca-Cola products, the Footsie’s Coca-Cola HBC (LSE: CCH), for example. The company’s performance on dividends over the past few years is impressive, as this table shows (with the per-share figures in euro cents):

Year2018201920202021202220232024(e)2025(e)
Operating cashflow per share (cents)215253263312336377?   ?            
Dividends per share (cents)57626471789397108
Dividend growth5.56%8.77%3.23%10.9%9.86%19.2%4.3%11%

There’s consistent and rising operating cash flow shown in those numbers. That’s encouraging because it takes cash to pay shareholder dividends.

Decent dividend growth

The directors have raised the dividend every year since at least 2018. That speaks volumes about their confidence in the prospects of the business. It’s great news for shareholders because the compound annual growth rate (CAGR) of the dividend is running at just over 10%.

Not all businesses can grow their dividend at that rate. Soft drinks maker Britvic has a dividend CAGR of just under 2%. Meanwhile, fast-moving consumer goods enterprise Unilever is at about 2.6%.

Perhaps it’s the magic of the Coca-Cola brand that’s led to the outperformance. Super-investor Warren Buffett has been a big fan of Coca-Cola for years. He’s often praised the business for its economic moat based on the brand’s strength.

However, Coca-Cola HBC isn’t actually the US-based Coca-Cola company. Instead, it has the exclusive rights to manufacture and sell Coca-Cola products in its territory. Operations take place in around 30 countries in Europe, Asia and Africa.

On top of that, the firm has partnerships with other beverage operators and sells their products as well.

A defensive operator

The business has defensive characteristics rather than the vulnerabilities of more cyclical enterprises. The strength of trading shows up in the multi-year trading record. So I’m a little surprised at how weak the share price has been:

On 14 February 2024, the company put out a robust trading update with a positive outlook statement. That seems to have jolted the market into moving the stock up again.

Nevertheless, there isn’t an outrageous valuation here. With the share price in the ballpark of 2,471p, the forward-looking dividend yield for 2025 is about 3.7%. That compares to a median rolling dividend yield for the FTSE 100 index of about 3.5%.

Despite the attractions of the business, all stocks carry risks – even defensive FTSE 100 outfits like this one. It’s possible Coca-Cola products could fall out of favour with consumers in the future, perhaps because of challenging general economic conditions. Worse still, the company could at some point lose its licence to sell the product for Coca-Cola.

Nevertheless, on balance, I think Coca-Cola HBC is well worth further research now and looks too promising to be ignored.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Britvic Plc and Unilever Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much passive income could I make if I buy BT shares today?

BT Group shares offer a very tempting dividend right now, way above the FTSE 100 average. But it's far from…

Read more »

Investing Articles

If I put £10,000 in Tesco shares today, how much passive income would I receive?

Our writer considers whether he would add Tesco shares to his portfolio right now for dividends and potential share price…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

What grows at 12% and outperforms the FTSE 100?

Stephen Wright’s been looking at a FTSE 100 stock that’s consistently beaten the index and thinks has the potential to…

Read more »

Young Asian woman with head in hands at her desk
Investing For Beginners

53% of British adults could be making a huge ISA mistake

A lot of Britons today are missing out on the opportunity to build tax–free wealth because they don’t have an…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

With growth in earnings and a yield near 5%, is this FTSE 250 stock a brilliant bargain?

Despite cyclical risks, earnings are improving, and this FTSE 250 company’s strategy looks set to drive further progress.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

With a 10%+ dividend yield, is this overlooked gem the best FTSE 100 stock to buy now?

Many a FTSE 100 stock offers a good yield now, although that could change as the index rises. This one…

Read more »

Investing Articles

£10k in an ISA? I’d use it to aim for an annual £1k second income

Want a second income without having to take on a second job? With a bit of money up front, and…

Read more »

Investing Articles

Up over 100% in price in 10 years! Big Yellow also offers passive income from dividends

Oliver loves the look of Big Yellow to generate a healthy passive income from its generous dividends. He thinks storage…

Read more »