Coca-Cola FEMSA: Stock & Dividend Analysis

Back in October I did an Ask Me Anything edition of the newsletter. I covered dozens of your questions, including such notable ones as

In that post I named Coca-Cola FEMSA (NYSE:KOF) as my table-pounding top pick.

A few people pushed back. I got one message afterwards that said it was a “pretty underwhelming” pick, and a few others that didn’t understand why I was so excited about the company. I think some folks were also a little upset that a guy who calls his website Canadian Dividend Investing didn’t have a Canadian company as his top pick.

Which I get, but at the same time I’m a value guy. Remember, around here we’re looking to maximize our dividend income while also growing the collective pot. You don’t do that without insisting on value — that’s just the way dividends work. I’d like for those opportunities to come strictly from Canadian stocks, but sometimes the best opportunities are outside our borders.

Besides, I also think there’s value in diversifying our dividend income a little bit. Yes, U.S. (and foreign) dividends are taxed a little higher than our dividends, but it’s still a much lower taxed form of income versus employment earnings or interest.

And when you’re actually retired, dividend income comes with a ridiculously low tax rate. Even if some of it comes from outside Canada.

I thought I’d dig deeper into Coca-Cola FEMSA and let y’all know exactly why I think it’s quietly a really good business, and why I continue to be a fan. Let’s dive in.

Coca-Cola FEMSA is the world’s largest Coca-Cola bottler. It serves more than 276M consumers in Latin America through 2.2M points of sale. It has operations in Mexico, Colombia, Brazil, Argentina, and six additional LATAM nations. It has 56 bottling plants, 256 distribution centres, and a fleet of nearly 12,000 trucks.

The company has three main shareholders. The largest stake is owned by FEMSA, a Mexican holding company that has operations in multiple sectors. Its largest positions are the Oxxo convenience store chain and its ownership stake in KOF. It has a 47.2% economic ownership stake and retains full control with a 56% voting share.

The second-largest shareholder is the Coca-Cola Company (NYSE:KO). Coca-Cola has been a large shareholder for decades. It currently owns a 27.8% economic interest. Like FEMSA’s stake, Coca-Cola’s voting share is higher than its economic share. It controls nearly 33% of votes, and has been a shareholder since 1993.

The other 25% of the company is owned by minority shareholders. There are two shares outstanding — Series L (which come with no voting rights) and Series B, which do come with voting rights. Series L is the larger series; it represents a 15.6% economic interest. Series B represent a 9.4% economic interest.

This is where things get a little confusing. Each unit on the Mexican Stock Exchange (FEMSA’s main exchange) represents ownership of 3 Series B shares and 5 Series L shares. Then, if that wasn’t confusing enough, each ADR on the NYSE is different. It represents ownership of 10 of the Mexican units (so 30 Series B and 50 Series L shares).

The largest shareholder of the public float is the Bill and Melinda Gates Foundation. Gates’ foundation owns about 3% of the company, and has maintained the position for some 20 years. Even though the foundation has his name on it, Gates doesn’t make the investment decisions — but I’d suspect Warren Buffett’s love of Coca-Cola still played a role here.

KOF doesn’t just distribute Coca-Cola products in its various territories. It has picked up other products over the years, including Santa Clara milk products, Ades vegetable protein drinks (soy milk), and a few different alcoholic drinks as well. It also acquired Del Valle juices and has expanded that brand throughout its various territories.

Basically, each territory offers a slightly different product mix, depending on various side deals it has signed with other companies who are looking for extra distribution.

The company has multiple growth avenues. The first is simply encouraging more consumption in markets where a lot of potential customers couldn’t previously afford Coca-Cola products. Mexico is the cash cow here, a mature market. The business there likely won’t grow much more than the overall economy. But other markets like Brazil, Argentina, and Colombia are growing simply from people increasing their consumption — especially in the sugar free part of the market.

Coca-Cola FEMSA has also been investing in technology. The company has the Juntos+ app, a way to connect it with retailers. Retailers can use the app to order, but it does so much more than that. It tells the retailer what kind of promotions the company is offering. Retailers can win prizes or request services through the app, too. Then company reps can simply consult the app when it comes time to service that store again.

The app is insanely popular. It has more than 1.3M monthly active users. I’m a fan, and I think it ultimately drives business.

There’s also some pricing power here. KOF has a monopoly in bottling Coca-Cola in its various markets. This means if you want a Coke Zero in Sao Paulo, you’re only getting it from one bottler. For instance, volumes actually declined by 1.8% in 2025 — mostly due to some bad weather in Mexico over Q1 and Q2 — but revenue increased by 4.3%. If we exclude currency fluctuations, revenue growth was even better, checking in at 6.5%.

(We’ll note that volumes are expected to grow again in 2026 as the World Cup gives the business a nice boost. The World Cut is a BIG DEAL in Latin America.)

FEMSA is also investing in the business. The company has upped capex and spent on new production lines and warehouse space. These improvements should allow it to increase business in places like Brazil, which is growing quickly. Previously the solution was to ship product from one warehouse to another to bridge gaps, but investing in more bottling equipment is the better choice long-term.

Even though these capex expenses have caused debt to rise over the last few years, the company still has one of the best balance sheets in the consumer products space. Its debt-to-EBITDA ratio is just over 1 — versus 3-4x for some of its CPG competitors — and the improvements are expected to increase EBITDA quickly enough that the debt-to-EBITDA ratio should remain at right around today’s levels.

These investments are expected to slow come 2027, which will give the company some excess cash without an obvious home. Sure, it could use its cash flow to pay off debt, but debt levels are already quite reasonable. I think large share buybacks will be on the table in Q3 or Q4, and the three long-term owners are happy to increase their ownership stake by using the company’s money to pay for it. That’ll then pave the way for additional dividend growth — although the company doesn’t need much help there. Dividend growth has always been a priority.

Although I liked the stock much better at the mid-$80 range — versus today’s price of more than US$100 on the NYSE — I still think KOF is a solid buy today.

Based on current exchange rates, KOF is expected to generate about US$7.25 per share in earnings. This could fluctuate if the USD/MXN exchange rate moves in a big way, but for the sake of this piece we’ll assume no currency moves.

That puts us at right around 14x earnings today for what I think is a high-quality business with strong returns on equity and returns on invested capital (both are 15%+).

It’s also close to the company’s lowest valuation over the last decade, and a solid 20% under the mean valuation. I think there will eventually be some multiple expansion here, and don’t think it’s unreasonable for the business to trade at around 20x earnings.

Earnings are expected to grow nicely in 2027 and 2028 too, increasing to $8.99 and $10.35 per share, respectively.

This is also a company that has grown over the long-term. Revenue essentially doubled between 2016 and 2025, giving us a CAGR of about 7% per year. Earnings increased more quickly, going from $2.26 per share in 2016 to $6.60 per share in 2025. That’s a CAGR of a little more than 11%. Not bad at all.

So, in short, we have a company that has grown its earnings by double-digits over the long-term, and that trades for a discount to its mean valuation. From a valuation perspective, I like what I see. I believe this is a quality asset that is temporarily cheap.

As mentioned earlier, I think the buybacks start coming later on this year.

But a company doesn’t get any credit for potential future buybacks, and I’ll note that KOF has not been a repurchaser of its own shares at any point in the last decade. On the other hand, it also hasn’t issued any shares either.

Let’s pivot to the dividend. KOF has a history of steadily increasing its dividend over time, but it has to deal with the currency screwing things up for USD investors.

Over the last decade, dividends in Pesos have increased each and every year except one. The payout has more than doubled in that time, for growth of about 9% per year. Growth has been a little lumpy, but nothing excessive.

The problem is when we convert those dividends to USD. The U.S. Dollar has been so strong versus most currencies over the last decade that growth in USD isn’t nearly as impressive. In fact, there are years in there where the dividend appeared to go down once it was converted to USD.

I don’t usually like to comment much on currencies, since I recognize I don’t add much value here. I’m not a currency trader, nor do I spend much time on the economic data that move currencies. But I will say that currencies do tend to even out over time. So after the last decade was negative for USD shareholders of KOF, I’d expect the next decade to be positive.

It’s obvious dividend growth is a priority here. The company’s primary shareholders probably insist on it. I think it’s going to continue.

As for the payout ratio, that is quite reasonable. We’re looking at a payout ratio of about 60-65% on a trailing basis, or slightly below 60% on a forward basis. The yield is right around 4.5%.

Dividend safety: High
Dividend growth potential: 7-10%

I’m the first to admit that Coca-Cola FEMSA isn’t a sexy pick.

This is a company that operates in areas that many of you assume are volatile. Soda consumption is shrinking in North America, so it must be doing the same in the developing world. And then there’s currency fluctuations to deal with.

No. Thanks. Hell, I bet a bunch of you didn’t even get this far.

But bottling Coca-Cola is quietly a good business. Latin America is growing richer, populations are growing, and there’s simply no alternative if these folks want a Coca-Cola. Margins are healthy, the balance sheet is great, and returns on equity/invested capital are strong.

This good business is quietly trading at a really compelling valuation. Shares trade hands for one of the lowest valuations in the last decade. The company also pays a dividend that should steadily increase over time, and looks primed to start buying back shares.

Put it all together, and I continue to like the name today. I’d like it more if it went back to the $85 range, but hey. Beggars can’t be choosers.

Your author owns Coca-Cola FEMSA shares.