I Recently Bought This Classic Dividend Growth Company:

I’m very happy to finally own a small piece of one of the most popular dividend growth stocks that exists: Coca Cola (KO).  No introduction is needed for this massive manufacturer, distributor, and marketer of beverage concentrates and syrups.  This company has had over 50 years of dividend increases, and you can find one of their many billion dollar brands in almost every corner of the world.  Coca Cola always seems to trade with a premium valuation, and I’ve been waiting for shares to drop in price for quite a while.  Now finally seems like a good opportunity to slowly build a position in my commission free Loyal3 account.  Here are my recent transactions:

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  I now own 23 different businesses in my portfolio, and each one provides me with growing dividend payouts every single year.  My total investment cost was just $364 and it bought 8.9937 shares which will add $11.87 to my 12 month forward dividends for a new total of $1,700.62.  The current dividend yield of 3.3% is flirting with its 5 year highs of 3.5% set way back in 2010.

2015_MAR_DY_KO

Source: http://www.profitspi.com/

The current price to earnings (P/E) on sites like Google and Yahoo finance seems high at around 25; however, Dividend Mantra at Daily Trade Alert rightly attributes that to temporary weak earnings and currency conversions, in his article “This Dividend Growth Stock Could Offer 16% Potential Upside.”  A recent Fast Graph shows a current blended P/E of 19.9 with a normal 20 year P/E of 26.9.

2015_MAR_FG_KO1

  Shares were way overvalued in the late 1990’s, peaking at a P/E of over 60 in the middle of 1998, which is why the normal 20 year P/E is so outrageously high.

2015_MAR_FG_KO8

If we reduce that 20 year P/E span to only the past 12 years, which doesn’t include that extreme overvaluation, we see a normal P/E of 20.1. This could imply that we’re right around fair value at today’s prices.

2015_MAR_FG_KO2

The current headwinds Dividend Mantra pointed out have also inflated the current payout ratio to above 80%, which is uncomfortably high, but again that should start to normalize in the coming years.  The company recently raised their dividend by 8.2% and has had a 12 year dividend growth rate of 9.9%.  You can see how the dividends will easily continue to rise based on this cash flow graph and 10-year earnings yield estimates:

2015_MAR_FG_KO3

2015_MAR_FG_KO4

Coke has come under fire for several other reasons lately including a massive shareholder outcry about the CEO’s 23% raise in compensation in 2014 despite unimpressive earnings growth over the past few years.   We also constantly hear that the United States is backing away from sugary sodas which have declined in volume for 10 years straight, but coke owns so many profitable non sugary brands in its very diverse portfolio including teas, vitamin drinks, and plain old water.  They also have the cash to acquire even more popular and trending products like its current sizable investments in Keurig Green Mountain (GMCR), Monster Beverages (MNST) and whatever else might come in the future.  I just can’t picture a world 10 years from now that doesn’t include Coca Cola still growing in some way.  I hope the price continues to slide from here so I can keep building this position.

What do you think of Coca Cola (KO)?  What are you buying lately?

My Dividend Growth

http://www.mydividendgrowth.com

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43 thoughts on “I Recently Bought This Classic Dividend Growth Company:
  1. roadmap2retire

    While some of the metrics are scary – over the long term, I think it doesnt matter that you overpaid a bit. Quality companies need some extra premium. Congrats on adding this to your portfolio. I need to start paying closer attention to the classics like you did here.
    I think Coke is looking in the right places for growth – coffee and energy drinks – are exactly the place one should be investing in.

    Best wishes
    R2R

     
    Reply
    1. My Dividend Growth

      Great points, R2R. Because of the dubious short term future, now seems like a great time to slowly work my way into a position a few hundred bucks at a time. I’m hoping for an easy average down in coming weeks and months, but who can predict that sort of thing? I’ll be curious to see if you ever add a beverage business to your portfolio, and I really want to join you in holding ADM who is involved behind the scenes. Best wishes and always glad to hear from you!

       
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  2. elderp

    I just recently added as well. I read an article recently tracking millenial spending habits and it was interesting that overwhelmingly they said they didn’t like sugary drinks or fast food, but when their spending was tracked it showed a different tale.

     
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    1. My Dividend Growth

      Great move in adding. That’s a pretty funny article you read and sums up my stance perfectly. It may not be socially popular to eat unhealthy, but behind the scenes we all have our guilty pleasures. I keep reading that fast food places are also going to de-emphasize soda, but that’s silly because the types that would eat fast food would likely never want another option. I appreciate you stopping by and thanks for reading!

       
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  3. Dividend Mantra

    Ryan,

    Thanks for the mentions. Much appreciated. Glad you enjoyed the DTA piece. 🙂

    Coca-Cola is one of my favorite companies. The headlines continue to harp on “nobody” drinking soda anymore, yet their sparkling volume was up yet again YOY. Either way, they’ve got so many beverages and brands spread across so many countries, that they’re about as insulated as it gets. And the currency headwinds will abate at some point… and then probably reverse. Meanwhile, snagging shares at a 3%+ yield is historically timely.

    Glad to be a fellow shareholder!

    Best regards.

     
    Reply
    1. My Dividend Growth

      You’re such a talented author that I learn so much from, it’s absolutely my pleasure for sharing!

      I’ve been wanting to join you in holding this company for so long now, it’ll add so much geographical diversity to my portfolio. I’m decently healthy and still enjoy drinking coke and sprite and don’t plan on stopping any time soon. Even if “nobody” drinks it in the future, the business has so much power to re-position itself and it’s great to see that already happening. I’ve got more money transferring to Loyal3 next week, so hopefully I can get that invested during this downturn and come out with enough dividends to pay any beverage expenses in my future. Hope you have a great weekend in sunny Florida and thanks as always for the support, Jason!

       
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    1. My Dividend Growth

      I appreciate that, David. Now that the price reverted back to $40, I wonder how low will it go??? I hope we see $38 or less because I’ve got money to invest 🙂 Hope all is well with you and take care!

       
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    1. My Dividend Growth

      That’s a great point Robert, I didn’t even mention the share buybacks that will easily inflate my returns from here. Hehe, I hear you on fixed income… NEVER!!!! Very cool to hear from such an established financial writer, I appreciate you checking in and have a great rest of the weekend!

       
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  4. JC

    KO is almost always a solid pick and it looks pretty tempting here at about a 3.3% yield. While soda volumes have been declining KO is much more than just a soda company. I like the moves with Monster and Keurig and of course the rest of their product lineup. Currency issues get overblown in the short term as it seems like people extrapolate that out to forever. Currency strength ebbs and flows just like everything. The USD won’t continue gaining strength against almost every major currency and over the long term it will start getting weaker and the multinationals will start to benefit from those same currency movements.

    Like the buy and might get me a Cherry Coke tonight.

     
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    1. My Dividend Growth

      Mmmm, Cherry Coke… May have to join you on that one 🙂

      You’ve hit the nail on the head, JC. I couldn’t have worded the currency conversation better. I hope that Monster and Keurig are just the start and we see a few more major investments / acquisitions in near term as long as the valuation makes sense. Eventually I’d want to own all three of the big guys in KO, PEP, and DPS. PEP seems right around fair value as well with very promising prospects, and DPS needs to retreat a bit as it’s soared from its lack of global imprint strong US dollar. Hopefully I’ll get my chance to build all of these positions eventually. Hope all is well and it’s always great to hear from you!

       
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  5. Dividend Gravy

    KO seems like a solid pick as a core position, especially at your age. You should have some lovely income from this stock come retirement time. I’m fairly heavy on KO but contemplate adding a little more at $40 or below. I like the dependability of the dividend, which is important for us old guys. The current yield is about as high as it gets for this stock, and I don’t think the company is going anywhere. It’s not a growth company, but the income should certainly keep up with inflation. What’s not to like?

     
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    1. My Dividend Growth

      It’s about time I hopped on the Coke train, hehe. I think you’re on to something being a little overweight in this one. It’ll supply that steady current income while allowing those younger and stronger growing companies a chance to catch up over the next several years and should all balance out nicely in the end. I’m attempting a similar balancing act with my high and low yielders. It’s interesting looking at these allocations today and trying to predict what they’ll look like when I reach FI. I guess that’s why it’s important to have a solid mix of stage 1-2 & 3 stocks. I appreciate you checking in and your blog is awesome, DG!

       
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    1. My Dividend Growth

      I hope you’re right as long I get to buy more first, ynikon 🙂 On the surface, MNST seems way overvalued if I were to just invest in that company, but it’s great to have exposure there through KO! Thanks for the comment.

       
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  6. Scott

    Great choice! I love Coke’s products. I am actually one of those people that will ask for a Coke at a restaurant and then if they say they only have Pepsi, I’ll ask for a root beer instead. It’s partially because I own KO but also because I genuinely prefer Coke’s taste. Very fun to visit the World of Coke tour in Atlanta. KO was also my very first stock that I bought in 1996 after my dad set up my custodial brokerage account.

    Glad to have you as a fellow shareholder!

     
    Reply
    1. My Dividend Growth

      Not one of those people…… j/k, I am a coke or bust man myself! Though for root beer I like A&W and love trying craft ‘brews’. I can’t believe you’ve been involved in investing since 1996…what a great first pick. That’s pretty awesome of your father and if I ever have a kid I can’t wait to teach them about it (without overdoing it of course.) Another sad thing I have to admit is that I’ve never been East of Illinois and so I haven’t seen that tour in Atlanta…yet. It reminds me that in the South they call all sodas “Coke” which is great advertising! In my home state of South Dakota they called it “pop.” When I moved to Los Angeles and got my first job serving tables I remember asking another server where the pop machine was and she said “Pop??? Oh my god that’s so cute, it’s over there and they call it Soda here.” I thought it was pretty funny and learned my lesson to call it ‘soda’ ever since. Thanks for the comment Scott and have a great week ahead 🙂

       
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  7. No More Waffles

    Ryan,

    Glad to be a fellow shareholder!

    Because KO is such a great company and investment, I could have immediately skipped to the comments section without reading anything of your post, but I’m glad I didn’t. You pointed out all of the reasons why I’m a big fan of Coke too.

    When the Euro recovers in a couple of months, you can count on it that I’ll start adding to my KO position again.

    Keep it up,
    NMW

     
    Reply
    1. My Dividend Growth

      Thanks for welcoming me to the club and I’m very glad to be aboard, NMW 🙂 This is definitely a no-brainer investment for the long term and I’m excited to reap the benefits and especially the dividends for years to come alongside you.

      Man, I hate seeing the currency fluctuations holding great investors like yourself back from US stocks at the moment. There are excellent alternatives like on the euro list you maintain, but I’m hoping for a quick reversal so you have more unlimited options. Thanks for the kind words my favorite Belgian friend!

       
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  8. Dividend Diplomats

    Ryan,

    Now I see why you suggested a beverage company as a response to my last article haha KO is one of those companies that you can’t ever go wrong purchasing. Strong brands have value and provide management with flexibility to find ways to increase shareholder value (spinoffs, sales, etc.). ANd as you know, KO has a lot of valuable brands and that is why I keep it in the same class as PG, where you can allocate some funds to those if you don’t have any others moves to make. It is worth the premium! Whats funny is focusing on the share price now and waiting to buy at a certain dollar amount won’t even really matter in the long run. So if you told yourself “I am waiting till KO drops below 40 to buy because it will be better valued,” you would either A) take the risk the stock appreciates or B) maybe pick up a few extra fractional shares. Not worth the wait if you ask me. If you believe KO warrants the premium it is trading at compared to the market, then make that purchase (Which you did)!

    Great buy! Way to add this rock solid company to your portfolio. You talked me into adding KO on my watch list haha

    Bert

     
    Reply
    1. My Dividend Growth

      Thanks for the thoughtful comment Bert, so much great conversation and info there. Coke is going through a bit of a rough patch the last few years compared to PEP and DPS, but that’s exactly when I like to buy. They’ve just established two new billion dollar brands in 2014 in Fuze & Gold Peak teas which can help provide so much power going forward like you speak of. I’m mainly hopeful about new acquisitions with that cash flow and management seems to be on the right track with those. Once this whole currency debacle reverses, I imagine top line growth will look much stronger and the current valuation will seem almost cheap historically. Love your thoughts on trying to time this purchase. I probably wouldn’t have initiated a full position at today’s prices, but that’s the beauty of Loyal3 and being able to work my way in little bits at time. Always great to hear from you and I’ll be watching your watch list to see where you act next and happy picking!

       
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  9. Dividend Gremlin

    Ryan,

    Welcome to the KO crowd. I was going to buy more, but my started failing on top of my wife’s car. When it rains, it pours, but no matter their price is coming down and I will definitely expand my position there next month.

    Congrats on the buy.

    -Gremlin

     
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    1. My Dividend Growth

      Glad to finally join you in this holding, Gremlin. Man, those extra setbacks are a real bummer and I feel for you my friend! At least you have sound priorities and I’m sending good vibes your way. I also hope you’re right about the price of KO falling more because I’d love to buy some under $40. Take it easy and finish the week strong my friend!

       
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  10. DivGuy

    At this price, I’d recommend KO for any investor! It is in fact part of many of our Dividend Stocks Rock portfolios! I’ve personally liked this company for a long time too, even though PEP did better in 2014. You can’t go wrong with it. So, congrats on this solid buy!

    Cheers!

    Mike

     
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    1. My Dividend Growth

      So glad to hear you sign off on this one, Mike. PEP has been the better pick for a few years now, but that’s a great reason to pick up KO on weakness in my opinion. Eventually I want to own both. You can’t argue with over fifty years of dividend raises, and that cash flow is really king. Hope all is well with you and thanks for the support my friend!

       
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  11. Vivianne

    KO is a long term lover of mr Buffett, you can’t really go wrong with one of the most recognizable company in the world.

    I used to own KO, but chose to rid of it due to conflict. But the company is solid, it will continue to be here for a long long time. Great job of picking a solid dividend growth company.

     
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    1. My Dividend Growth

      It’s wild that Buffett makes over 500 million dollars and growing from dividends each year from this company! I’d be a lover at those rates too 🙂 Heck, I’m a lover even at these much smaller amounts. Let the growth begin! Thanks for the support, Vivianne. Your portfolio is doing great over there and it’s very fun to watch 🙂

       
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  12. retirebeforedad

    MDG,
    I’ve owned KO since 1997. Can’t say i’ve made a killing on the stock. It was priced very high in the late 90’s and I was buying through the drip. It took me the first 6 years just to accumulate just 15 shares. I’m at about 230 now post split. It’s been cool to see the dividend grow every year, and thus, my income grow buy doing nothing. Nowadays, I’m not adding to it because it is one of my largest holdings. I only reinvest the dividends. The drip fees are too high, so I would buy through Loyal3 if I was adding to it. I don’t know why they even have the drip anymore now with Loyal3. Last count, they’ve paid me $1575 in dividends in 18 years. But now the divs really jump every time there’s an increase.

    As for long-term, I’m not worried because they are always buying new brands. Coffee and tea alone are a huge potential direction. And what about a beer brand some day? Who knows.

    Welcome. Drink up!
    -RBD

     
    Reply
    1. My Dividend Growth

      Wow! The market environment must have been wild in the late 90’s, that’s so cool you were involved back then. I’m very impressed you had the knowledge to invest in dividend growth even in those days when records show that everyone was screaming about tech stocks. Luckily that growing income helped make up for the overvaluation at the time to help you catch up a little bit. Your lifetime coke dividends alone trump my entire portfolios, and that’s amazing to see what time can accomplish! It’s sad you have to pay for your drip when so many brokerages these days including my Sharebuilder accounts provide free options, I wonder if you’ve considered transferring out of wherever you hold those shares to a more friendly and cost efficient platform. If coke ever makes a beer, I’m so in… mmmmmm coke beer…..hehe. Thanks for sharing your story RBD, it’s always refreshing to hear from someone as successful as yourself!

       
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  13. theresvalue

    I think you’re right about ‘not being able to see a future without KO growing’. I suspect that the refined sugar will gradually be replaced by Stevia, as it is being done over here in the UK. We have ‘green coke’ that is the stevia version.

    But as you say, there are so many other parts to the Coca Cola business which I also believe will continue to grow in the coming years.

    Cheers

     
    Reply
    1. My Dividend Growth

      I’d love to try one of those ‘green cokes’. The healthy part of me feels a little guilty every time I drink a high fructose corn syrup laced soda, so it’s great to hear of all the other alternatives popping up. Coke does scare me sometimes by acquiring products like honest tea and taking out the good ingredients and replacing them with sugar, but I trust they’ll figure it out eventually. Thanks for checking in!

       
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    1. My Dividend Growth

      Nice move with PEP. That was the second job I ever had as a teenager and I use to love the discount I received on soda bottles 🙂 I want to join you in holding that one very soon. Thanks for stopping by!

       
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  14. DivHut

    While I like the KO buy and have held it in my account for many, many years I feel that it’s still a tad expensive at current levels. Without splitting hairs, I prefer the stock at under $40 instead of north. In any case, it’s a proven long term dividend payer and grower and the company is really growing its portfolio of non soda brands such as coffee and milk. I still like the Canadian banks and recently added to my BNS. Thanks for sharing.

     
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    1. My Dividend Growth

      I agree its expensive and I avoided KO until now for that reason. I’m not too upset over a few percentage points I guess, but I hope you’re right and it drops below $40 again because I’ve only barely nibbled at a position and would love to see lower prices before I bite again. I love Loyal3 for these sort of moves. Hope all is well with your family, especially the latest addition 🙂

       
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  15. FI Fighter

    I’m a fan of this purchase. KO is one of the few companies where you can really just set it and forget it. Things aren’t exactly all peachy right now, but if you are a long term investor, that’s not a problem. Companies will always have their ups and downs. If stability is what you’re after, it’s hard to do much better than KO.

     
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    1. My Dividend Growth

      I’m a big fan FI Fighter and it feels great to have a near millionaire sign off on this small purchase. I share that typical value investor view of buying some of these names when they’re beat up and discounted. KO has massive cash flow and I’m happy to set it and forget it while they get to the bottom of their growth problems. Very cool to hear from you, thank you for reading!

       
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  17. Dividend Growth Journey

    Nice purchase Ryan. I hold KO that I purchased through weekly purchases in my sharebuilder account. I recently started adding KO again in March after a break due to the prices coming back to the $40 levels. Would like it to see drop a bit more though 🙂

     
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    1. My Dividend Growth

      I’m so happy to finally join you in this name, DGJ! It looks like the price is already rebounding… but lets hope that’s just the calm before the storm and we get at awesome prices. Wishing you an excellent week ahead my friend!

       
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