Generating $1,000 a year in dividends with Coca-Cola stock isn't cheap, but it is a worthy endeavor.
Generating $1,000 a year in dividends with Coca-Cola stock isn't cheap, but it is a worthy endeavor.
It's common for equity income investors to say they want to generate a specific amount in yearly income from a specific dividend stock. Accruing the capital to hit that goal, particularly if it's of the four-figure or higher variety, right off the bat is another matter.
Take the case of Coca-Cola (KO +2.06%), one of the largest consumer staples companies by market cap. On Thursday, Oct. 15, the beloved soft drink stock hit an all-time high before settling at $92. The stock is up nearly 34% year to date, outperforming all "Magnificent Seven" stocks.
Still, it's not cheap to extract $1,000 in yearly income from this stock. My back-of-the-envelope math tells me that, based on Coke's annual dividend of $2.12 per share and an Oct. 15 closing price of $92, the 472 shares required to get to $1,000 in annual dividends from Coke will cost a cool $43,424. That's not small potatoes, but that capital outlay is worth it for investors who can afford it.
Don't trip on Treasury comparisons
Coca-Cola is a Dividend King, or one of the companies with a dividend increase streak of at least 50 years. For the beverage giant, the streak of payout increases spans 65 consecutive years. However, the stock yields just 2.31%.
Sure, that's more than double the dividend yield on the S&P 500, but it's not a knock-your-socks-off yield. It arguably seems paltry at a time when 10- and 30-year Treasuries are yielding north of 5%. Conventional wisdom often dictates that when U.S. government bond yields are unusually high, that's bad news for dividend stocks because investors may be apt to ditch those stocks for the perceived lower-risk attributes of Treasuries.
As noted above, Coca-Cola stock is up nearly 34% this year, so it's defying that wisdom. Plus, the last 10 years of history confirm that shares of Coke have been an infinitely better bet than intermediate-term and long-dated Treasuries from a performance perspective.
KO Total Return Level data by YCharts
The point is that the real risks may well be leaving potentially significant amounts of capital appreciation on the table in the name of safety and high yields. An interesting, related footnote: While researching this article, I came across a 2019 piece about "Coca-Cola millionaires," or folks who bought small amounts of the stock during the Great Depression and went on to become millionaires decades later (or their heirs did). One of the author's points was to embrace dividend growth and not be tricked by yield.
Averytin News Financial update.