FINANCIAL MANAGEMENT ASSIGNMENT

“Dividend Policy and Executive Summary of Coca-Cola”

Submitted By -
VIJEESH M
0201MBA123
MBA II - A
Executive Summary-

The Coca Cola Company is simply everywhere you look. From the water that you need to
survive to the soft drink that you sip on to relax, anywhere you go in the world, everyone knows of
Coca Cola. A company doesn’t become a world-wide powerhouse without a mission or a vision
that is enduring and pure. Coca Cola has a mission to refresh the world, inspire moments of
optimism and happiness, and set out to create value and make a difference in the world. Without a
vision, Coca Cola could never start out on its mission. Coca Cola’s vision relies on the six P’s:
people, portfolio, partners, planet, profit, and productivity to set an illuminating path to make
sure their mission is always in sight. This brand, Coca Cola, didn’t just become a sensation
overnight. In fact, the Coca Cola beverage was invented, over a century ago, in 1886 by John Stith
Pemberton. John Pemberton’s time as the sole owner of Coca Cola was short lived due to Asa
Candler incorporating the Coca Cola Company, as well as buying the formula and the brand in
1889 and 1892, respectively.

Dividend Policy-

Coca-Cola (KO) is one of the most storied dividend payers in the entire stock market.
The company has paid a quarterly dividend continuously since 1920, and for the past 57 years, it
has paid increasing dividends each year. That makes Coca-Cola a member of the exclusive list of
the Dividend Aristocrats, a group of 57 stocks in the S&P 500 Index with 25+ consecutive
annual dividend increases. Coca Cola stock also has a current yield of 3%, which is significantly
higher than the ~2% current yield of the broader S&P 500 Index. Because of its long history of
steady dividend increases, we view Coca Cola as a blue chip stock.

Coca-Cola is a pure-play beverage giant on a scale that is unlike any other. The
company’s very long operating history and steady growth have afforded it the ability to scale and
acquire new brands over time, and today, it produces about $37 billion in revenue. It should be
noted that a multi-year effort to refranchise formerly owned bottling operations has cut the top
line in a bid to boost margins and reduce capex needs in recent years. Even so, Coca-Cola is one
of the largest companies in the US market, trading with a market capitalization of $229 billion.
 Coca-Cola’s portfolio includes an astounding 4,300 products that are sold worldwide. It
has its core Coca-Cola brand, as well as popular favorites like Sprite, Diet Coke, and others.
However, Coca-Cola’s growth in recent years has come from brand extensions, like flavored
Coke and Diet Coke products, as well as its massive and growing portfolio of non-sparkling
beverages. In addition, the company has acquired and built brands in non-sparkling categories
like tea, dairy, coffee, and sports drinks to diversify away from flagging global sparkling
beverage sales.

Coca-Cola has also spent tremendous amounts of money in recent years on low and no
sugar drinks. In all, it launched 600 new products in 2018, and more than 250 of them were low
or no sugar. In addition, of the 600 new products, more than two-thirds were non-sparkling
beverages. Not only has Coca-Cola built a highly diversified revenue stream in terms of product
mix, but it is also very well diversified globally. Only 20% of the company’s revenue is derived
from North America, with the balance of 80% coming in roughly equal parts from the rest of the
world. Coca-Cola sells in nearly every country on the planet, and has strong market share just
about everywhere.

And of particular interest to dividend investors, Coca-Cola returns billions of dollars to

shareholders each year via cash payouts and share repurchases. This global network of revenue
distribution opens Coca-Cola up to significant currency risk, but over the years, it has managed
to hedge away some of that risk, and accept the rest.

Growth Prospects

Despite Coca-Cola’s massive size and scale, we believe it has a long-term runway for growth.
This is the case for a variety of reasons, not the least of which is the company’s highly
diversified portfolio of sparkling and non-sparkling brands, but also the large global market
opportunity.
The company’s market share in its categories is strong, as Coca-Cola is #1 in 32 of its 40 top
markets. In addition, it is #1 in more than 75 country/category combinations. That means the
company has well-established brands in a variety of places around the world. However, that
doesn’t mean it is done growing.

For example, ready-to-drink, or RTD, beverages are growing at a faster rate than other categories
like packaged foods. In addition, unlike other categories, RTD beverages can be sold in a variety
of places, including restaurants, grocery stores, general retailers, convenience stores, and more.
This, combined with the massive $1.5 trillion total market value in the categories Coca-Cola
competes in, mean that despite the company’s enormous size, it is nowhere near saturation.