The Coca-Cola Company (KO) is one of the most legendary dividend stocks of all time. It has paid a dividend to shareholders for nearly a century.

Over this period, the company has operated through a number of challenges, including wars and recessions.

And yet, its dividend has stood the test of time. What’s more, Coca-Cola has increased its dividend for 54 years in a row.

With that kind of a dividend track record, Coca-Cola is one of just 19 Dividend Kings. The Dividend Kings are a select group of companies with 50+ years of consecutive dividend increases.

Coca-Cola last increased its dividend on Feb. 18, 2016, which means another hike is right around the corner.

This article will discuss the previous year for Coca-Cola, and what investors should expect when the company announces its upcoming dividend increase.

Business Overview

Coca-Cola has a huge product portfolio, which are split into two categories: sparkling beverages and still beverages.

(Click on image to enlarge)

Source: 3Q Earnings Presentation, page 10

It has 20 brands that generate $1 billion or more in annual sales.

The sparkling beverage portfolio includes the flagship Coca-Cola brand, as well as other soda brands like Diet Coke, Sprite, Fanta, and more.

The still beverage portfolio includes water, juices, and ready-to-drink teas, such as Dasani, Minute Maid, Vitamin Water, and Honest Tea.

This is a challenging time for Coca-Cola. Soda consumption in the U.S. has fallen for more than a decade. In addition, the strong U.S. dollar has wreaked havoc on multinational companies like Coca-Cola.

This has caused significant headwinds for the company. In 2015, Coca-Cola’s total revenue and operating profits declined by 4% and 10%, respectively.

Conditions improved modestly in 2016, but the company still struggled. Revenue and operating profit fell by another 5% and 1%, respectively.

That being said, Coca-Cola’s results were dragged down by unfavorable currency markets, and the divestments of its bottlers.

Combined, these two factors shaved nine full percentage points off Coca-Cola’s revenue in 2016.

These issues have an impact, but are expected to be short-term in nature.

Coca-Cola’s organic revenue (which excludes currency) increased 3% in 2016. This is a better sign that the company’s core business is performing well.

Adjusted earnings-per-share, which excludes foreign exchange and restructuring expenses, increased 5% in 2016. Growth was due to price increases, volume growth, and share repurchases.

Growth Prospects

The difficulties presented by currency and divestments are expected to have a negative impact in 2017, and even 2018.

For 2017, Coca-Cola expects a massive 12%-13% revenue headwind from acquisitions, divestitures, and structural items.

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Source: 4Q Earnings Presentation, page 12

Earnings-per-share are expected to decline 1%-4% in 2017.

The company projects a further 16%-17% revenue headwind from these items in 2018.

However, the company’s core operations should still see growth in 2017. Coca-Cola’s stills portfolio is arguably its most important growth catalyst.

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Source: Investor Overview Presentation, page 32

The stills product portfolio represented 36% of Coca-Cola’s 2015 case volumes, up from 16% in 2000. Further growth is likely, as consumers are demanding more non-carbonated sodas.

The sparkling portfolio faces challenges from the decline in soda consumption. However, it remains a highly profitable business.

And, Coca-Cola still aims for growth in the sparkling business, even with a continued slowdown in demand.

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Source: 4Q Earnings Presentation, page 10

Growth in the sparkling operation will revolve around smaller pack sizes and price increases.

Lastly, Coca-Cola has a compelling growth catalyst in the emerging markets, such as China and Latin America. Organic revenue increased 1% in Asia-Pacific last year, and 12% in Latin America.

Competitive Advantages & Recession Performance

Coca-Cola enjoys two distinct competitive advantages, which are its strong brand and global scale.

According to Forbes, Coca-Cola holds the fourth-most valuable brand in the world, worth approximately $58.5 billion.

And, Coca-Cola has a massive global distribution network. This provides for economies of scale, and the ability to cut costs when deemed necessary.

For example, Coca-Cola realized $600 million of productivity savings in 2016.

These qualities allow Coca-Cola to remain highly profitable, even during economic downturns. Coca-Cola’s earnings-per-share through the Great Recession are shown below:

• 2007 Earnings-per-share of $1.29
• 2008 Earnings-per-share of $1.51 (17% increase)
• 2009 Earnings-per-share of $1.47 (3% decline)
• 2010 Earnings-per-share of $1.75 (19% increase)

In a remarkable achievement, Coca-Cola grew earnings-per-share by 36% from 2007-2010. This shows the durability and power of Coca-Cola’s business model.

Dividend Analysis

Coca-Cola reported adjusted earnings-per-share of $1.91 in 2016.

Meanwhile, Coca-Cola’s current annualized dividend is $1.40 per share. This means the company distributed 73% of its earnings-per-share in dividends last year.

This is a tight payout ratio. Since Coca-Cola does not expect earnings-per-share growth in 2017, this will likely affect its dividend growth rate.

As a result, it would be prudent for investors to expect a modest dividend hike this year. A 4%-6% dividend increase seems appropriate, given the company’s challenges and high payout ratio.

Still, Coca-Cola stock has an attractive 3.4% dividend yield. A 4%-6% hike would raise the dividend yield to approximately 3.5%-3.6%. These levels are well above the 2% average dividend yield in the S&P 500 Index.

And, Coca-Cola’s dividend is rock-solid.

Thanks to Coca-Cola’s strong brands, high margins, and global scale, the company is a cash-generating machine.

Even in a difficult year, Coca-Cola generated $6.5 billion of free cash flow in 2016.

This is more than enough cash flow to sustain its dividend and capital investing needs, repurchase shares, and raise the dividend modestly.

Final Thoughts

Coca-Cola is in the middle of a rough patch, due to unfavorable currency, a restructuring, and changing consumer preferences.

That being said, Coca-Cola has demonstrated a proven ability to navigate difficult environments.

Coca-Cola has one of the most impressive dividend histories of any stock. There are only 19 Dividend Kings, even with the recent inclusion of California Water Service Group (CWT).

Coca-Cola has been a member of the Dividend Kings list for several years already, and is likely to add to its streak very soon.

Expect at least a 4% dividend increase from Coca-Cola in the coming days.