The Coca-Cola Company is just one of only 17 companies on the list of Dividend Kings that have been increasing their dividends for at lease 50 years. Coca-Cola has been increasing their dividend annually for 52 years. That's incredible by any standards. For this and many other reasons the Coca-Cola Company is very attractive to me as a Dividend Growth Investor. The decision to add this stock to my portfolio is dictated by the fact that the company is currently on sale.
The Coca-Cola Company (KO), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. Its sparkling beverages include nonalcoholic ready-to-drink beverages with carbonation, such as carbonated energy drinks, and carbonated waters and flavored waters. The company’s still beverages comprise nonalcoholic beverages without carbonation, including noncarbonated waters, flavored and enhanced waters, noncarbonated energy drinks, juices and juice drinks, ready-to-drink teas and coffees, and sports drinks. It also provides flavoring ingredients, sweeteners, powders for purified water products, beverage ingredients, and fountain syrups. The Coca-Cola Company sells its products primarily under the Coca-Cola, Diet Coke, Coca-Cola Light, Coca-Cola Zero, Sprite, Fanta, Minute Maid, Powerade, Aquarius, Dasani, Glacéau Vitaminwater, Georgia, Simply, Del Valle, Ayataka, and I Lohas brand names. The company offers its beverage products through a network of company-owned or controlled bottling and distribution operators, as well as through independently owned bottling partners, distributors, wholesalers, and retailers. The Coca-Cola Company was founded in 1886 and is headquartered in Atlanta, Georgia. (Daily Chart) (Weekly Chart)
A lot has been written about the recent difficulties in the sales of Coca-Cola's (and others) carbonated beverage products. Coca-Cola as a company has been around for 128 years and during that time they have experienced many difficult periods and yet they've managed to continue to survive and grow their sales throughout the world. I believe these recent difficulties are only temporary and that they will be solved relatively soon. By taking a little longer view than the last couple of years of the company's fundamentals, it can be seen that Coca-Cola has 5 and 10 year revenue growth rates of 7.96% and 8.33%, respectively. When it comes to earnings the company has 5 and 10 year earnings growth rates of 8.90% and 8.00%, respectively. And most importantly (to me), it has 5 and 10 year dividend growth rates of 8.06 and 8.00%, respectfully. These are remarkably consistent and stable numbers. Somehow I think that the management of Coca-Cola will somehow solve this recent short term problem of slowing shipments and these recent shipment levels will soon become a distant memory.
Coca-Cola has a history of staying in front of the changing beverage business and their recent purchase of 10% of Green Mountain Coffee Rosters (GMCR) demonstrates that once again they are evolving as consumer tastes expand and change while also continuing to support and distribute their current line of beverages. Despite all the concerns about obesity and possible government regulation of the carbonated beverage industry in the US and around the world, I really don't see consumers turning away from the many Coca-Cola brands (nor do I see consumers loosing much weight either!).
The company's recent increase in the quarterly dividend from $.28 to $.305 has raised the annual dividend to the very nice level of $1.22 per share. When compared to this past weekend's price of $38.20, the yield is now 3.20%. This is well above the yield I look for when researching companies. The downside to this is that the payout ratio has now risen to 64%. While this is not an extremely high payout ratio with a correspondingly low retained earnings level, it is a higher payout ratio than I would like it to be. Fortunately a company that basically sells sugar water really doesn't need a lot of retained earnings for R&D but they will need sufficient retained earnings for any future acquisitions (such as the Green Mountain purchase identified above). One other parameter often quoted is the P/E ratio. The current P/E ratio for Coca-Cola is approximately 20. While this is at the upper edge of the area that's generally considered desirable, it probably doesn't really reflect the numbers going forward. KO's earnings have been under more pressure than it's stock price and as earnings increase in the future the P/E ratio should fall proportionally.
So why Coca-Cola and why now? The "why Coca-Cola" is easy. It's a great company and it's one of the Dividend Kings. It has had a history of success for so long that it's easy to project a successful future going forward. As to why now? That's simple too. While doing a scrub on the Dividend Aristocrats (which Coca-Cola is obviously also a member of) I determined that its stock was priced at a level such that it is one of the true bargains being offered today. It's obvious to me that the key to success in the stock market is buying great stocks at bargain prices and this stock fits that requirement.
As can be seen in the charts below, the price of the stock is starting to rise from its recent low, its MACD is crossing upward, the RSI is moving up, and the ADX is reversing. These are all great signs that the price of the stock has bottomed and is moving up. With a one year target price of $44.05 the one year capital gains on this stock is expected to be 15.31%. When added to the dividend of 3.20% we have an expected one year total return of 18.51%. And even if this is an overly optimistic evaluation and only 3/4 of this amount is realized, it'll still be a total return of almost 14%. Those are numbers I can live with and sleep well at night.
A company with a dividend that grows at 8% per year will double that dividend every 9 years. With the revenues and earnings growth rates also growing in the vicinity of 8% I would expect the price of the stock to double in those same 9 years even without reinvesting the dividend. By reinvesting the dividend, an investment in Coca-Cola will double even faster than those 9 years. Finally, I feel that this dividend is fairly secure going forward based upon the 52 year record already in place and I intend to purchase the securities of this company today. Wish me luck.
The Coca-Cola Company (KO), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. Its sparkling beverages include nonalcoholic ready-to-drink beverages with carbonation, such as carbonated energy drinks, and carbonated waters and flavored waters. The company’s still beverages comprise nonalcoholic beverages without carbonation, including noncarbonated waters, flavored and enhanced waters, noncarbonated energy drinks, juices and juice drinks, ready-to-drink teas and coffees, and sports drinks. It also provides flavoring ingredients, sweeteners, powders for purified water products, beverage ingredients, and fountain syrups. The Coca-Cola Company sells its products primarily under the Coca-Cola, Diet Coke, Coca-Cola Light, Coca-Cola Zero, Sprite, Fanta, Minute Maid, Powerade, Aquarius, Dasani, Glacéau Vitaminwater, Georgia, Simply, Del Valle, Ayataka, and I Lohas brand names. The company offers its beverage products through a network of company-owned or controlled bottling and distribution operators, as well as through independently owned bottling partners, distributors, wholesalers, and retailers. The Coca-Cola Company was founded in 1886 and is headquartered in Atlanta, Georgia. (Daily Chart) (Weekly Chart)
A lot has been written about the recent difficulties in the sales of Coca-Cola's (and others) carbonated beverage products. Coca-Cola as a company has been around for 128 years and during that time they have experienced many difficult periods and yet they've managed to continue to survive and grow their sales throughout the world. I believe these recent difficulties are only temporary and that they will be solved relatively soon. By taking a little longer view than the last couple of years of the company's fundamentals, it can be seen that Coca-Cola has 5 and 10 year revenue growth rates of 7.96% and 8.33%, respectively. When it comes to earnings the company has 5 and 10 year earnings growth rates of 8.90% and 8.00%, respectively. And most importantly (to me), it has 5 and 10 year dividend growth rates of 8.06 and 8.00%, respectfully. These are remarkably consistent and stable numbers. Somehow I think that the management of Coca-Cola will somehow solve this recent short term problem of slowing shipments and these recent shipment levels will soon become a distant memory.
Coca-Cola has a history of staying in front of the changing beverage business and their recent purchase of 10% of Green Mountain Coffee Rosters (GMCR) demonstrates that once again they are evolving as consumer tastes expand and change while also continuing to support and distribute their current line of beverages. Despite all the concerns about obesity and possible government regulation of the carbonated beverage industry in the US and around the world, I really don't see consumers turning away from the many Coca-Cola brands (nor do I see consumers loosing much weight either!).
The company's recent increase in the quarterly dividend from $.28 to $.305 has raised the annual dividend to the very nice level of $1.22 per share. When compared to this past weekend's price of $38.20, the yield is now 3.20%. This is well above the yield I look for when researching companies. The downside to this is that the payout ratio has now risen to 64%. While this is not an extremely high payout ratio with a correspondingly low retained earnings level, it is a higher payout ratio than I would like it to be. Fortunately a company that basically sells sugar water really doesn't need a lot of retained earnings for R&D but they will need sufficient retained earnings for any future acquisitions (such as the Green Mountain purchase identified above). One other parameter often quoted is the P/E ratio. The current P/E ratio for Coca-Cola is approximately 20. While this is at the upper edge of the area that's generally considered desirable, it probably doesn't really reflect the numbers going forward. KO's earnings have been under more pressure than it's stock price and as earnings increase in the future the P/E ratio should fall proportionally.
So why Coca-Cola and why now? The "why Coca-Cola" is easy. It's a great company and it's one of the Dividend Kings. It has had a history of success for so long that it's easy to project a successful future going forward. As to why now? That's simple too. While doing a scrub on the Dividend Aristocrats (which Coca-Cola is obviously also a member of) I determined that its stock was priced at a level such that it is one of the true bargains being offered today. It's obvious to me that the key to success in the stock market is buying great stocks at bargain prices and this stock fits that requirement.
As can be seen in the charts below, the price of the stock is starting to rise from its recent low, its MACD is crossing upward, the RSI is moving up, and the ADX is reversing. These are all great signs that the price of the stock has bottomed and is moving up. With a one year target price of $44.05 the one year capital gains on this stock is expected to be 15.31%. When added to the dividend of 3.20% we have an expected one year total return of 18.51%. And even if this is an overly optimistic evaluation and only 3/4 of this amount is realized, it'll still be a total return of almost 14%. Those are numbers I can live with and sleep well at night.
A company with a dividend that grows at 8% per year will double that dividend every 9 years. With the revenues and earnings growth rates also growing in the vicinity of 8% I would expect the price of the stock to double in those same 9 years even without reinvesting the dividend. By reinvesting the dividend, an investment in Coca-Cola will double even faster than those 9 years. Finally, I feel that this dividend is fairly secure going forward based upon the 52 year record already in place and I intend to purchase the securities of this company today. Wish me luck.
Coca-Cola Daily Chart -- 28 Feb 2014
| 
Coca-Cola Weekly Chart -- 28 Feb 2014
|
Print 
PDF
RSS Feed
