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Last Thursday, The Coca-Cola Company (NYSE:KO) declared their $0.305/share quarterly dividend. This equals an 8.9% increase in the quarterly dividend payments compared to last year. Investors could use some good news after the disappointing earnings report, released on Tuesday. Coca-Cola reported only 2% global volume growth and net revenues declined by 2% for the full year. Full-year earnings per share came in at $1.90 a share, lower than most analysts and investors expected. The stock lost 3.8% of its value on Tuesday and another 1% on Wednesday. As a result of the dividend increase and the lower share price, Coca-Cola has a current dividend yield of 3.3%. In my opinion, Coca-Cola's 3.3% dividend yield is hard to ignore for long-term investors. Therefore, I bought the shares this week, which is my first long position in Coca-Cola. In this article I will provide several arguments for my decision to buy Coca-Cola's shares.

Dividends

Coca-Cola pays a current quarterly dividend of $0.305/share (annual: $1.22/share). The company has a long and reliable history when it comes to the consistent increase of the company's dividend (for example: see graph below). As a result, the company is named among the 51 S&P 500 Dividend Aristocrats. These dividend aristocrats increased their dividend payouts for 25 consecutive years. Coca-Cola announced their 52nd consecutive dividend increase this week. Coca-Cola's average dividend growth rate is 8.28% over the past five year.

KO Dividend Chart

KO Dividend data by YCharts

As a result of the dividend increase and the falling share price, Coca-Cola's current dividend yield jumped to 3.28%. The stock's dividend yield has not been above 3% since August 2010. This caused me to look into the stock in the first place. Further, I compared Coca-Cola's dividend yield with PepsiCo (NYSE:PEP) and Dr. Pepper Snapple Company (NYSE:DPS). The results are displayed in the graph below. PepsiCo's yield is 2.90% and Dr. Pepper's yield is 3.17%. I found that Coca-Cola currently has the highest dividend yield among large-cap beverage companies.

KO Dividend Yield (NYSE:<a href='http://seekingalpha.com/symbol/ttm' title='Tata Motors Limited'>TTM</a>) Chart

KO Dividend Yield (TTM) data by YCharts

Share repurchases

Along with its attractive dividend, Coca-Cola has an active program for share repurchases. Coca-Cola spend $4.8 billion on purchases of stock for treasury last year. Overall, the company reduced the total number of outstanding shares by 40 million to 4.416 million. Over the past ten year, Coca-Cola reduced the total number of shares by 460 million (see graph below). For next year, Coca-Cola targets net share repurchases between $2.5 and $3.0 billion. This equals a net reduction of the total number of shares by 67 to 80 million shares, based on the company's current share price.

In general, I favor share repurchases in addition to the dividend payments. Share repurchases send out a positive signal to the market. In this case, Coca-Cola targets to reduce the total number of outstanding shares by 67 to 80 million. Over the past ten years, the company reduced an average of 40 million shares/year. The increasing effort to buyback shares could point out that Coca-Cola's management considers the current share price undervalued (or at least not overvalued).

KO Shares Outstanding Chart

KO Shares Outstanding data by YCharts

Strong cash flow

Finally, I took Coca-Cola's free cash flow into account. Strong free cash flow is important to support the dividend payments and/or the share repurchases. Coca-Cola has been able to grow its free cash flow from $5.4 billion to $8.0 billion in the past five years. In 2013, Coca-Cola paid $4.9 billion in dividends, 61.25% of the company's free cash flow. I concluded that Coca-Cola's dividend is well covered by its annual free cash flow.

KO Free Cash Flow (<a href='http://seekingalpha.com/symbol/ttm' title='Tata Motors Limited'>TTM</a>) Chart

KO Free Cash Flow (TTM) data by YCharts

Conclusion

In my opinion, the recent drop of the share price is an investment opportunity for long-term investors. Coca-Cola's dividend yield jumped above 3% for the first time in four years. The company offers investors an attractive 3.3% dividend yield. The dividend payments are well covered by the company's annual free cash flow. In 2013, Coca-Cola paid out only 61.25% of its annual free cash flow. I expect that Coca-Cola will be able to increase the dividend payments consistently. Coca-Cola is and remains a stable company that can deliver great value for its shareholders. Do not forget that Coca-Cola is the third most valuable brand in the world. So, I took the recent pull back as an investment opportunity and bought Coca-Cola shares around $37.40/share.

Disclosure: I am long KO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Coca-Cola's 3.3% Yield Is Hard To Ignore