An interesting post by MeineAktien on Instagram about the payout ratio of Coca-Cola made us curious. Therefore, we took a closer look at the topic once again. The payout ratio is truly a fascinating case.
Although the ratio has normalized somewhat, almost the entire profit was distributed in 2020. On average over the last 4 years and taking the trend into account, we arrive at 86.5% of the profit flowing into dividends. The trend is broadly downward, but this is mainly due to the gigantic slip-up of 2017. From 2019 to 2020, the payout ratio increased again to over 90%.
A dividend payment of more than 30% of profit leads to losses in the overall performance of a stock. Up to 70%, this effect is largely offset by lower volatility. This effect also disappears at the latest when the entire profit is distributed. At the same time, the expected performance continues to fall steadily.
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Particularly interesting, however, is the cash flow. It has stagnated for ten years and can barely cover costs anymore due to rising interest payments. The extreme effects of a slightly decreased cash flow in 2017 and 2018 can be clearly seen in the payout ratios of 100% and even 500% in those years. When cash flow can no longer cover costs, the company begins to distribute the dividend from corporate substance rather than from current funds. Then, sooner or later, the dividend must be cut unless the balance sheet improves.
Lars Wißler does not own any of the mentioned stocks. PWP Leeway does not own any of the mentioned stocks.
