A successful company has a few options when they earn real money. Companies can:
- Reinvest its earnings back into the business,
- Buyback some of its common stock, or
- Pay a dividend.
I prefer the latter for all companies I own directly and from the perspective of a shareholder in Coca-Cola, I’m glad I do.
Coco-Cola (KO:US) started paying a dividend in 1893 and has been paying a quarterly dividend since 1920. At the time of this post, the dividend payment is $0.28 USD. Here are some interesting KO metrics courtesy of TMX and DividendInvestor.com:
|12/2012 balance sheet assets||>$86 B|
|12/2012 cash from operations||>$10.6 B|
|Market cap||>$187 B|
|5-year average dividend yield||~2.9%|
|Dividend payout ratio||~58%|
|5-year average dividend growth rate||>8%|
|Total return last 5 years||>80%|
*Recall P/E tells us a ratio about market value per share / earnings per share (EPS). Generally, a higher P/E means investors are expecting higher earnings growth ahead.
With 50 years of consecutive dividend increases behind them and a generous P/E on the books, I can see KO churning out profits and dividends for investors for decades to come. Let’s look at some interesting calculations:
- An investor who owned KO 23 years ago today (just picked the year 1990 at random) would have returned over 1000% on this investment. The total value of a $10,000 investment in KO 23 years ago would be worth about $117,000 today. You can play with stock calculators from this page or other sites and see for yourself.
With international growth on the rise, up near 20% in Thailand in particular and near 10% in other countries year-over-year, the future looks promising for Coca-Cola.
Since I’ve owned Coca-Cola, I’ve seen the quarterly dividend rise from $0.41 USD per share, to $0.44, to $0.47, to $0.51 before the 2-for-1 stock split last year. As a top-20 holding, blue-chip stud in Vanguard’s Total Stock Market Fund (VTI:US), I see no reason to sell this company for the foreseeable future. If the stock price moves up, I will continue to hold it. If the stock price moves down, I will consider buying more if I have the money to do so since killing my mortgage competes heavily with my investing objectives.
As an investor, reliability is important to me. I also recognize there are other ways businesses can deploy their earnings and for many companies, dividends are not guaranteed. However in the case of Coca-Cola, it seems like dividends and capital appreciation are pretty much sure things.
Do you own Coca-Cola stock directly? Do you own it indirectly via Exchange Traded Funds (ETFs) like VTI or others?
Image courtesy of http://www.photographyblogger.net/16-exceptional-coca-cola-pictures/