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Why you should choose a reliable dividend payer

During times of economic uncertainty and market volatility, investing in companies that are able to pay reliable and growing dividends is an effective way to reduce financial anxiety. 

This investment approach generally serves investors well in all business and economic cycles as capital growth is ultimately a function of dividend growth over the longer term.

A good example of a company with the ability to consistently grow dividends is Coca-Cola. The graph illustrates the company’s impressive dividend track record and how dividend growth ultimately drives capital appreciation.

Coca-Cola is the largest seller of non-alcoholic beverages in the world with an offering that includes fizzy drinks, bottled water, energy drinks, fruit juices and ready-to-drink teas and coffees. In total, the company owns over 500 brands and manufactures over 3?500 products.

This means that if you wanted to try a different Coca-Cola product every day it would take you over nine years to sample them all. 

With so many popular brands it is hard to imagine a day going by without drinking something made by Coca-Cola, no matter where you live.

Coca-Cola’s geographic diversification, diverse product offering and dominant brands, have allowed the company to increase its dividends on more than 50 consecutive occasions in the face of several recessions, oil shocks, wars, market crashes and changes in technology. Looking ahead, this trend is set to continue as the company has huge potential for dividend growth.

It is estimated that between 2015 and 2020 the global middle class will grow by 700m people, driving an increase in personal consumption of approximately $20tr.

Consequently, Coca-Cola has calculated that the worldwide beverage industry (excluding the US) will increase in value by approximately $300bn over the same period.

In addition to benefitting from a growing market, Coca-Cola is also determined to become an even bigger part of our day-to-day lives. The company points out that the average household (worldwide) consumes 26 drinks per day and that of these drinks, only 1.4 are made by Coca-Cola.

Thus, despite being a massive company, which has been operating for over 70 years, the potential for dividend and capital growth in the years ahead is clear to see.

In conclusion, increased market volatility in 2015 has made investors anxious about the long-term outlook of their investments.

Marriott feels that this need not be the case if one invests in companies that pay reliable and growing dividends like Coca-Cola. The company’s current dividend yield of 3.1% is an attractive entry point for new investors.

*Brian Vambe is an investment professional at Marriott Asset Management.

This article originally appeared in the 4 February 2016 edition of finweek. Buy and download the magazine here

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