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.

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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.

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