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:
| Metric | Value |
| 12/2012 balance sheet assets | >$86 B |
| 12/2012 cash from operations | >$10.6 B |
| P/E* | 22.20 |
| Market cap | >$187 B |
| Dividend yield | ~2.6% |
| 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.
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.
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 long-term.
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/
Does anyone know of a Canadian discount brokerage that allows US dividend stock to be enrolled in a DRIP? I’m with BMO InvestorLine right now, and they do not allow it.
Any help would be greatly appreciated,
Thanks.
Hey Tom,
Just responded to your email 🙂
Just called RBC Direct Investing. I gave them a bunch of US stocks: KO, JNJ, PG, WMT, MCD, etc….the big blue chips. The rep. said they do allow synthetic DRIPping (need enough dividends to buy 1 full share) of all these stocks in their US $$ RRSP account. The rep. told me actually for most of the US stocks, the big blue-chips in the S&P 500, you can run a DRIP.
I’d have to call ScotiaiTrade to see if they do the same.
I know for a fact, you can run a synthetic DRIP many S&P 500 US stocks with TD Waterhouse.
Every brokerage handles things a bit differently, not every broker is created equal 🙂
Big fan of KO. Will keep the company until I retire… and beyond!
I hear ya buddy. Will promote your latest post now 🙂
@My Own Advisor
Plus, think of the marketing opportunities! Coke could introduce a “micro Coke” (perhaps muCoke, or something), selling half the volume of a regular coke, for only 90% of the price!
Ha – absolutely! 😉
You’re way too healthy for soda! I have a few pops now and then, maybe one every couple of weeks.
@Jane Savers @ Solving The Money Puzzle
Interesting what Jane Savers says about the obesity concerns and how pop is one of the first things dropped from the budget. I stopped buying pop because I was buying a case of coke every week. I was getting addicted to having it in the house so I stopped as it was adding up quite fast in the budget. It’s true on both counts but I still think that Coke products will dominate for a long while as long as they keep up with the demands of the consumer even in this healthy-wise society. I don’t know how McDonald’s does but we all know that that Supersize me certainly hasn’t stopped the masses from spending their cash to eat Big Macs and Fries. It would be interesting to see where this goes. Thanks for sharing Mark.
Good comment. I totally recognize that pop may be on the decline in North America, but the quench for thirst in the rest of the world is just heating up. North America has what, about 530 million people? India alone has double-that. The boom is just beginning there.
The menu of other products Coke has is impressive too. I simply can’t see this company slowing down but I’ve been wrong before. I don’t need this stock to perform well forever, just another 50 years 😉
When I was a child, my grandfather bought Coke and told us that anything that he made from it would go into our college funds. He didn’t hold it for very long though, and therefore made very little from it. I do think the soft drink industry is in for a bit of a rocky road, so we’ll see how it does.
Wow, can you imagine if he held onto it…. Soft drinks may decline, but likely only in North America. Just a bet of course.
I do own KO.
Like you mentioned in your post, KO is a great company that is likely to continue its growth in the foreseeable future. KO has several great brands and uses these brands to expand in new market.
I like the company and I would like to add to my stake. However, according to my calculations, it seems that KO is a bit overpriced right now.
I would be a buyer below $35.
I would agree, based on P/E, a bit pricy but I’m not sure it’s going to pullback. I can see it crossing $50 before coming back under $40.
I had considered buying Coke last year but changed my mind. When I first started thinking about a purchase I started seeing their name all over the world in news stories where people were drinking Coke or standing in front of a store that displayed a Coke sign.
Then Mayor Bloomberg of New York City tried to limit the size of pop that could be sold and obesity is the number one health problem in the USA and we are quickly catching up in Canada.
Pop is one of the first things that people would drop when making cuts to their budgets and much of the world is not in a secure financial position. My budget is tight and I drink tap water and pop is an occasional treat.
Thanks for the comment Jane!
Sure, Mayor Bloomberg of New York City tried to limit the size of pop that could be sold but that won’t stop people for consuming it. Besides, there are billions of people who want this product, not just a few million in Manhattan.
I suspect snack food and pop food will always exist. The marketing is far too strong for it not to survive. Our budgets are tight now and then as well, we don’t buy pop often. It probably takes me 6 months to drink a 12-pack of cans.