Over the past few weeks, shares in FTSE 100 dividend stock Coca-Cola HBC AG (LSE: CCH) have crumbled by nearly 50%. However, unlike other businesses in the travel and aviation sectors, it doesn’t look as if this company will face a significant decline in activity due to the coronavirus outbreak.
As such, now could be an excellent time for long-term investors to snap up a share of this FTSE 100 dividend stock at a bargain price.
Coca-Cola HBC is one of the largest bottlers of Coca-Cola products in the world. This makes the business relatively defensive because consumption isn’t particularly sensitive to economic fundamentals.
Indeed, between 2007 and 2009, the beginning and height of the financial crisis, Coca-Cola HBC’s output increased from 2,019 cases per year to 2,069. Net sales revenue rose from €6.46bn to €6.54.
These numbers suggest the business should be able to weather the current crisis as well. Government policies designed to stop the spread of the virus around the world may have stopped consumers travelling, but they are still allowed to eat and drink.
For its part, the company has informed the market that it remains a “strong position as a market leader in the countries where we operate.” Management also believes the group has “a strong balance sheet and adequate liquidity.“
The above suggests Coca-Cola HBC should continue to remain profitable throughout the outbreak. This income should continue to support the group’s dividend yield. Further, the company is highly cash generative, which is why I ‘ve highlighted its dividend potential on numerous occasions.
Last year, the company generated free cash flow from operations of $450m. That was more than double its regular dividend cost of $200m. Management also announced a special dividend of €2 a share, reflecting “successive years of strong performance.“
The good news is that, after recent declines, shares in this FTSE 100 dividend stock now offer a dividend yield of 4.1%. Considering the safety of this distribution, that level of income looks highly attractive in the current environment.
The group also has a history of increasing its dividend at an inflation-busting rate. Over the past six years, the dividend has grown at a compound annual rate of 11.5% — roughly in line with earnings growth over the same period. This excludes the special dividend.
These numbers hint the dividend stock could increase its payout next year as well, considering its defensive nature. What’s more, the stock is now trading at a price-to-earnings (P/E) ratio of 10.3.
Considering the stability of the group’s earnings, it looks as if this is a price worth paying for the business. It also suggests the stock offers a margin of safety at current levels.
The bottom line
So, all in all, it looks as if shares in Coca-Cola HBS have been oversold during the past few weeks. Its income stream is unlikely to be interrupted by coronavirus and, with its healthy cash flows, the dividend looks safe.
Therefore, now could be an excellent time to buy this dividend stock while it’s on offer.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.