Coca-Cola (KO -0.41%) is a classic example of a great dividend stock. It's a dividend king, as it has raised its dividend annually for the past 62 years, under all kinds of circumstances. It's one of Warren Buffett's favorite stocks, with the dividend as a prime factor.
Let's see how much you'd have to invest in Coca-Cola stock to make $1,000 in dividends every year.
High, steady, and growing
Coca-Cola has earned its reputation over time by giving dividend investors everything they'd want in a dividend stock. It has paid, and raised, a generous dividend for well over half a century. Considering all the things that have happened over that time, including several financial crises and a global pandemic, that's an incredible track record.
Master investor Warren Buffett loves dividends because they indicate several positive qualities about a company, including a commitment to shareholder value and a large stash of cash. Coca-Cola's payout ratio is usually around 75%, which means it pays out 75% of its earnings as dividends. It keeps the remaining money to operate the business, buy back shares, and build its cash reserves.
Coke's dividend typically yields around 3%, which today is more than double the S&P 500 average. It currently pays $0.485 per share quarterly, adding up to an annual dividend of $1.94. To earn $1,000 in total dividends this year, you'd need to own 516 shares, which will cost you $32,905 at today's price.
Keep in mind that the dividend you get per share increases annually. If you invest this year, you'll get more than $1,000 next year, and it will compound over time. Investing in Coca-Cola stock isn't only about the dividend. Even if you don't reinvest the dividend but use it for passive income, Coca-Cola stock will appreciate over time. Although it's underperforming the market this year, the stock has gained 8% year-to-date without the dividend. If you do reinvest the dividend, you'll increase your base investment and get even more dividend income in the future.
