Coca-Cola Europacific Partners: Assessing Dividend Sustainability Amid Revenue Growth and Leverage Risks

In the evolving landscape of global consumer goods, Coca-Cola Europacific Partners (CCEP) has emerged as a pivotal player, leveraging its regional dominance in Europe and the Asia-Pacific regions. The company's recent €1.25 interim dividend declaration for 2025, coupled with a reaffirmed full-year guidance of 3–4% revenue growth and 7% operating profit expansion, has sparked renewed interest among income-focused investors. However, the sustainability of this dividend-and its implications for long-term capital preservation-hinges on a nuanced evaluation of CCEP's financial health, particularly its leverage profile and cash flow dynamics.

Revenue Resilience and Strategic Dividend Commitment

CCEP's Q3 2025 results underscore its operational resilience, with reported revenue of €5.41 billion and adjusted comparable FX-neutral growth of 3.2%, according to a Q3 Trading Update. This performance, driven by robust volume growth in Europe (+0.9%) and strategic product innovations (e.g., 24% energy drink volume growth), has enabled the company to maintain a 50% dividend payout ratio while committing to a €1 billion share buyback by year-end, according to the same Q3 Trading Update. For income investors, this signals a disciplined approach to capital returns, balancing shareholder rewards with reinvestment in core markets.

The dividend increase itself is noteworthy. By raising the second-half interim payout to €1.25 per share, CCEP aligns with its historical trend of gradual dividend growth, which has averaged 5–7% annually over the past decade, as noted in the Q3 Trading Update. This trajectory suggests a commitment to rewarding shareholders, even as macroeconomic headwinds persist in key markets like Indonesia, as detailed in the H1 2025 Financial Results.

Leverage Risks and Free Cash Flow Constraints

Yet, the sustainability of this dividend must be viewed through the lens of CCEP's leverage. The company's debt-to-equity ratio of 132.8%-calculated from total debt of €11.3 billion and equity of €8.5 billion-highlights a structural reliance on debt financing, according to a Balance Sheet Health analysis. While this ratio is not uncommon in the beverage sector, it raises concerns about vulnerability to interest rate hikes or liquidity shocks. For context, CCEP's interest coverage ratio of 14.5x (EBIT/interest expenses) remains robust, but this buffer could erode if operating margins face pressure from inflation or supply chain disruptions, as noted in the Debt to Equity Ratio analysis.

Free cash flow, a critical metric for dividend sustainability, also warrants scrutiny. CCEP's full-year guidance of at least €1.7 billion in free cash flow appears achievable given its H1 2025 performance (€425 million in free cash flow) and CAPEX plans of ~5% of revenue, according to the Debt-to-Equity analysis. However, the €1 billion share buyback-a non-trivial use of capital-could strain liquidity if cash flow falls short of projections. This tension between buybacks and dividend obligations underscores the need for prudence in assessing long-term payout stability.

Sector-Specific Risks and Strategic Buffers

CCEP operates in a sector characterized by low differentiation and price sensitivity, which amplifies the importance of cost management and brand loyalty. The company's focus on premium offerings (e.g., Coca-Cola Zero Sugar, which grew 6.3% in Q3 2025) and strategic partnerships (e.g., English Premier League, Star Wars) provides a buffer against commoditization, as reported in the Q3 Update. These initiatives not only drive revenue per unit case growth (+2.7% YTD) but also enhance customer retention in a competitive market.

Nevertheless, sector-specific risks remain. Regulatory pressures on sugar content, shifting consumer preferences toward health-conscious beverages, and geopolitical volatility in the Asia-Pacific region could dampen growth. For instance, CCEP's Q3 performance in the Asia-Pacific region was flat, with Indonesia's weaker consumer backdrop offsetting gains in other markets, as detailed in the Current Report. Such regional imbalances highlight the need for diversified growth strategies.

Conclusion: A Calculated Opportunity for Income Investors

For long-term income investors, CCEP's dividend increase represents a calculated opportunity. The company's strong revenue growth, margin expansion, and disciplined capital allocation practices (e.g., 50% payout ratio, €1 billion buyback) demonstrate a commitment to shareholder value, as highlighted in the Q3 Trading Update. However, the elevated debt load and sector-specific risks necessitate a cautious approach. Investors should monitor CCEP's ability to maintain free cash flow above €1.7 billion while executing its buyback program and navigating macroeconomic headwinds.

In a world where income-generating assets are scarce, CCEP offers a compelling but not risk-free proposition. The €1.25 interim dividend is a vote of confidence in the company's operational resilience, but its long-term sustainability will depend on CCEP's capacity to balance growth, leverage, and shareholder returns in an increasingly uncertain environment.