Over many years, Coca-Cola HBC (LSE:CCH) has proven to be one of the FTSE 100‘s greatest dividend shares. Annual payouts have risen for 13 straight years, reflecting its diverse revenue streams and strong brand power and the dependable cash flows these deliver.
I hold the Coca-Cola bottler in my portfolio for its delicious dividend record. And with some tax relief sitting in my Self-Invested Personal Pension (SIPP), I was thinking of buying more shares. But I decided against it in the end.
The reason? Coca-Cola HBC’s already one of my largest holdings, so I’m looking to buy Coca-Cola Europacific Partners‘ (LSE:CCEP) shares instead. Here’s why.
The twist
Like its FTSE 100 peer, Coca-Cola Europacific Partners bottles the world’s most popular soft drinks. We’re talking about Coke, a brand which is reportedly known to 95% of the world’s population. Other prominent labels include Sprite, Fanta, and in other categories, Monster Energy and Costa Coffee.
This has a number of advantages for dividend investors. Cash flows are robust across the economic cycle, as consumers buy them in huge volumes even during downturns. These labels also enjoy supreme pricing power, allowing these companies to effectively raise prices to maintain or grow profit margins.
But there’s a major difference between these two drinks giants. And it all comes down to the territories in which they operate. HBC makes roughly 70% of net revenues from emerging and developing markets in Europe and Africa.
Meanwhile, Coca-Cola Europacific makes 90% of its revenues from mature European and Australasian markets. The result? Annual earnings growth can be lower, but demand’s more stable, which can be lead to more reliable dividends.
Any other advantages?
There are some other advantages Coca-Cola Europacific enjoys over HBC too. These include:
- Greater scale, being the world’s largest drinks bottler with roughly 600m customers.
- Higher margins, with its operating profit margin rising to 13.4% last year on ongoing productivity improvements.
- Better value for money, with a price-to-earnings growth (PEG) ratio of 0.4 and 2.7% dividend yield.
- Stronger free cash flow, allowing it to pay growing dividends along with regular share buybacks.
But there are also downsides. For instance, regulation is sharper in Europacific’s regions than HBC’s, as illustrated by measures like sugar taxes in parts of Europe. Its markets are also more saturated, meaning Europacific must spend more on marketing to defend its shelf space and fend off rival drinks.
A top FTSE share
There’s more to successful passive income investing than just thinking about dividends. A growing shareholder payout has little benefit if the share price stagnates (or even reverses).
Fortunately, Coca-Cola Europacific — like CCH — has proved an excellent performer on both fronts. It means shareholders have enjoyed a healthy average annual return of 14.4% over the last five years. CCH has also delivered a juicy return, albeit at a slightly lower 12.9%.
I’m optimistic both these FTSE shares will keep delivering a healthy mix of price gains and dividend income. I’ll be looking to add Europacific to my portfolio in the coming days to diversify my portfolio and enjoy those shared benefits.
