The Coca-Cola Company manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. The company is member of the S&P 500, Dow Jones Industrials and the S&P Dividend Aristocrats indexes. Coca-Cola has paid uninterrupted dividends on its common stock since 1893 and increased payments to common shareholders every year for 48 years. One of the largest holders of Coca-Cola stock is no other than the Oracle Warren Buffett, who is the chairman of Berkshire Hathaway (BRK.A;BRK.B) and one of the best investors in the world.
Over the past decade this dividend stock has delivered an average total return of 3.60% to its shareholders. The stock has largely traded between $65 and $40 over the past decade.
The company has managed to deliver a 14.30% average annual increase in its EPS over the past decade. Analysts are expecting an increase in EPS to $3.45 for 2010 and $3.76 by 2011. This would be a nice increase from the 2009 earnings per share of $2.93. Future drivers for earnings could be the company’s tea, coffee and water operations. Cost savings initiatives could also add to the bottom line over time, as well as increases in volumes in emerging markets such as China.
The acquisition of Vitaminwater in 2007 has increased growth in the company’s non-soda business, which is where Coke lags behind PepsiCo. The acquisition of CCE’s North American bottling business, should bring in sufficient cost savings for the company’s North American supply chain, which would result in increase in cash flows. The deal is expected to deliver approximately $350 million dollars in cost savings over the first four years of implementation. In addition to that, it will bring more control over North American operations, deliver more flexibility in the company’s strategy implementation and reduce conflicts over the product mix with bottlers.
The Return on Equity has been in a decline after hitting a high in 2001. It has stabilized since 2005 at a very impressive 30%. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The reason for the high returns on equity is that the company does not generally own the high capital intensive bottlers or fountain wholesalers, which produce and distribute the actual drinks. Instead it sells syrups, which are then mixed at the bottlers plants, and then are packaged and distributed. Coca Cola does have partial interests in 38 bottlers and distributors however, which accounted for over half of its worldwide volumes. Coca Cola Enterprises (CCE), in which Coca Cola (KO) owns a 34% stake, accounts for almost half of Coca-Cola’s US concentrate sales.
Annual dividend payments have increased by an average of 10.30% since 2000, which is lower than the growth in EPS. The company last raised its dividend by 7.30% in February 2010, for the 48th year in a row.
A 10 % growth in dividends translates into the dividend payment doubling every seven years. If we look at historical data, going as far back as 1968, The Coca Cola Company has aindeed managed to double its dividend payment every seven years on average.
The dividend payout ratio remained above 50% for the majority of the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Coca Cola is trading at 17.30times earnings and yields 3.40%. In comparison arch rival in the cola wars Pepsi Co (PEP) trades at a P/E multiple of 16.10 and yields 3.10%. Check my analysis of Pepsi Co (PEP). I consider Coca Cola Company is just as attractively valued at the moment as Pepsi Co. I would add to my position in the stock as long as it trades below $58.60.
Full Disclosure: Long KO and PEP
- Capitalize on China’s Growth with these dividend stocks
- Seven dividend aristocrats that Buffett owns
- Buffett the dividend investor
- Four notable dividend increases
I posted my goals for 2016 a few weeks ago. After some changes that I became aware of subsequent to posting the article, I have some change...
The first week of this year has been brutal for many investors. It is during times like these that you see who really is a long-term invest...
In the first two weeks of this year, the stock market has been down a lot . For someone who invests for dividends, I am relatively agnostic ...
It is nice to have a diversified income stream . While many seem to look for a focused method, I look for a diversified method of generating...
Today marks the eight year of Dividend Growth Investor website . I wanted to thank all of you who follow my humble site. I didn’t really exp...
ConocoPhillips (COP) just announced that it is cutting its quarterly dividend from 74 to 25 cents/share. This comes after management consta...
Warren Buffett is one of the best investors in the world . He is skilled in the art of capital allocation. I have always suspected that the ...
Most readers know me as a person that buys a stock in a company I like, and then I keep building a position as long as valuation and allocat...
To be honest, I didn’t do much investing wise in January. Of course, I didn't panic and I stayed the course . Per my earlier article I s...
The first three weeks of this month have been terrible for investors worldwide . It could be painful to watch your portfolio value decrease ...