Is Coca Cola HBC's dividend one of the best in the market?

There is some evidence that buying progressive dividend payers with solid balance sheets is a strategy well-rewarded by the market. That certainly seems to have been the case for Coca Cola bottler Coca Cola HBC AG (LON:CCH) over the past few years, which has grown its dividend by 10%pa since 2013:

The question now is how sustainable is Coca Cola HBC's dividend payment and can it continue its strong track record of growth? Earnings per share divided by dividend per share is called dividend cover - and it’s a great way to quickly gauge a company’s capacity to continue its dividend payments.

How to interpret Coca Cola HBC's (LON:CCH) dividend cover

Generally speaking, a dividend cover of below 1.5 times is cause for concern. Above 1.5 is good, but it is when you are getting above two times cover that you see the sign of a high-quality, sustainable dividend payment. Let’s see how Coca Cola HBC measures up.

The group’s FY18 earnings per share was €1.21 and its FY18 dividend per share was €0.57. Dividing the former by the latter shows that Coca Cola HBC has a dividend cover of 2.12.

This is a positive sign for shareholders of Coca Cola HBC. Other checks you can perform to assess dividend safety include:

• Checking the current ratio is above 1.5 times and preferably above 2x
• Making sure dividend per share is covered by free cash flow per share
• Assessing balance sheet health by looking at the group’s gearing ratio

Income investing: what you need to know

For many investors, dividends are a vital part of their long-term strategy. That's why we have created a variety of income-focused stock screens, such as the Best Dividends Screen, to identify promising candidates for income portfolios. Take a look and see if any of the qualifying stocks might be worthy of further research.

If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.