Recent Buy

ByDividend Mantra Team

buy

I wasn’t sure if I was going to make another stock purchase this month. I’ve had some demands on my capital lately – specifically the costs involved with moving my blog to the new platform, and taxes. However, the move is now done and my taxes for 2013 have also been completed and closed out. The tax hit: $2,777. Not fun, but, of course, I’d much rather owe taxes because I’m doing well than take a time machine back to my early 20s when I was waiting tables and getting a tax refund every year because I wasn’t make much money.

Now that my capital situation is clear I found that I had a little left in the tank to make one more purchase this month. I’ve taken the last few days to scan for some opportunities, and while nothing immediately jumped at me as a steal, I did find one particular equity that caught my eye after some recent weakness. I found one of the bluest blue-chips down by almost -10% YTD, against a broader market decline for the S&P 500 of -0.46%. I took a look to see if there was some value there, and decided to act.

I purchased 30 shares of The Coca-Cola Company (KO) on 2/20/14 for $37.35 per share.

The Coca-Cola Company is the world’s largest beverage company. They own or license over 500 nonalcoholic beverage brands. They sell products in over 200 countries around the world.

This purchase comes not long after my last round of buying shares in Coca-Cola, as I added to my position just last month at $38.98 per share. So you’re telling me I can buy shares in of the highest quality companies in the world for even less money than I was willing to pay just one month ago? Count me in!

What’s changed?

Well, quite a bit.

Coca-Cola recently reported 4th quarter and full-year results, and investors haven’t been happy. In my opinion, results are mixed. Global volume for the year grew slightly less-than-expected, at 2%. This compares unfavorably to volume growth of 4% in 2012.  And revenue fell by 2% for the full year. However, revenue was negatively impacted by currency. Factoring currency and structural changes out, revenue grew by 3% for the full year. EPS was also down 3% for the full year, coming in at a reported $1.90. Likewise, EPS was negatively affected by currency. Global diversification is wonderful, but it looks like currency rates are causing some negative fluctuations in reported results right now. These trends tend to revert to a mean over time.

However, there are also some positive notes for the company.

Coca-Cola has entered into a global strategic partnership with Green Mountain Coffee Roasters, Inc. (GMCR), whereby Coke purchased a 10% minority equity stake in the company and will work with GMCR to develop a new cold beverage platform. Coke is hoping to get in on the ground floor of an exciting, new business as GMCR will be Coca-Cola’s exclusive partner for production and sale of Coca-Cola Company-branded single-serve pod-based cold beverages. Whether this catches on or not, it’s exciting that Coca-Cola is trying to adapt to changing consumer trends. And the 10% equity stakes gives them exposure to a fast growing coffee company.

Furthermore, while sugary beverages continue to face headwinds due to health risks and potential regulation, Coca-Cola did report gains in market shares for core sparking beverages and still beverages for the full year. While major markets in North America and Europe remain challenged, the company is experiencing rather robust growth in the Pacific Group and Eurasia & Africa Group.

In addition, Coca-Cola raised its quarterly dividend 8.9% today. The new quarterly per share dividend of $0.305 is an increase of 2.5 cents over the old quarterly rate of $0.28. This represents Coca-Cola’s 52nd year of consecutive dividend raises. Quite a feat, and one very few companies around the world can claim. However, this raise pushes up the full-year dividend to $1.22 per share. Against EPS of $1.90, that means the payout ratio now stands at 64%. A touch high, so I’ll be watching for continued growth in earnings to support future dividend raises. Meanwhile, the dividend remains comfortably covered by free cash flow. This raise now pushes Coca-Cola’s yield to 3.27% – which is quite high for this company. I’m more than happy to collect that type of yield on my investment from a high quality worldwide juggernaut with 52 years of dividend increases.

It’s been a tough couple years for Coca-Cola. Growth has been hard to come by as core markets continue to struggle. However, I’m in this for the long haul. I’m not looking at this quarter, or even the last few quarters. I’m looking at where Coca-Cola might be 10 years from now. And I see nothing that really concerns me. The company still sells over 3,500 products worldwide in over 200 countries. They still have 16 $1 billion brands. And the company keeps delivering solid dividend growth which propels my income ever-higher.

Using the last 10 years of data, revenue has grown from $21.9 billion in 2004 to $46.8 billion in 2013. That’s a compound annual growth rate of 8.8% over the last decade, which is down from the numbers I released just last month because I’m now using full-year results for 2013. Using the newly released EPS data, EPS has a CAGR of 7.4% over the last decade – up from $1.00 in 2004 to $1.90 for 2013. Again, this is down from the numbers I used last month as 2013’s results hadn’t been released yet at the time. S&P Capital IQ predicts CAGR in EPS of 8% over the next three years, which would be on par with what the company has historically delivered over longer periods of time.

Overall, while the numbers are in a negative trend over the last couple years, these growth rates are still very healthy over the last decade. Currency headwinds have certainly not helped, and volume growth is slower than the company and analysts had expected. However, I’m not all that concerned about the currency issues as these things tend to fluctuate over time. The volume growth is a bit concerning, but I’m confident that Coca-Cola can continue executing on cost-savings programs and new initiatives to drive growth like the recent partnership with GMCR. It’ll be interesting to see how Coca-Cola navigates over the next few years.

Qualitatively, I still feel this company is a fantastic holding for the long haul. The company sports one of the world’s most valuable brands in Coca-Cola, and the competitive advantages are obvious. Global distribution networks, and wide diversification between brands and products, as well as countries. And their products represent quality, which usually translates to a premium that allows Coca-Cola to maintain fairly healthy profit margins above 18%. For instance, I’m a very frugal guy. But when I drink soda it’s not store brand, I can tell you that. Coca-Cola tastes good, and so do all of their other beverage products.

The balance sheet remains healthy. The company currently has just over $17 billion in cash and cash-equivalents. The debt/equity ratio stands at 40%. And the interest coverage ratio is 30, which is very solid.

Risks remain with this company, as the aforementioned demand for sugary beverages wane to due health concerns. Regulation is also an ever-present risk. Furthermore, competition remains high with PepsiCo, Inc. (PEP).

Shares in Coca-Cola currently trade at a P/E ratio of 19.6, which is just a bit over its 5-year average of 18.2. Not cheap, but the yield is quite high compared to historical norms, and earnings have been hit by aforementioned currency headwinds. I valued shares using a typical Dividend Discount Model analysis with a 10% discount and a 7% long-term growth rate. This gives me a fair value on shares of $43.51. Bringing the growth rate down to 6% knocks the fair value down to a little over $32 per share, so it’s imperative that Coca-Cola continues to stay vigilant across all markets to ensure volume growth. I’d say the margin of safety in shares at today’s price is probably minimal overall, depending on what kind of growth the company is able to deliver going forward. But I’m happy to pay pretty close to fair value on one of the greatest companies in the world.

This purchase adds $36.60 to my annual dividend income total based on the current quarterly per share dividend of $0.305.

My portfolio currently holds 44 positions. This is unchanged with this purchase, as KO was an existing investment.

I’m going to include current analyst valuation opinions below, as I use these to concentrate my reasonable valuation estimate.

*Morningstar rates KO as a 4/5 star value, with a fair value estimate of $45.00.
*S&P Capital IQ rates KO as a 3/5 star Hold, with a fair value calculation of $34.00.

I’ll update my Freedom Fund in early March to reflect my recent addition.

Full Disclosure: Long KO, PEP

Do you like Coca-Cola here? What do you think of some of the recent developments?

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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105 Comments

  1. I’m already overweight Coke, but I may have to add to my holdings anyway if it continues to fall. I’m not sure about the Green Mountain deal, but I appreciate that Coke’s board continues to raise the dividend. For how the broader market is priced, you could do a lot worse than Coke.

  2. Hi Jason,

    Great write up on KO. This has to be one of the greatest company’s to invest in for the simple fact that you know the company will be around in 10,15,20 years from now, paying a higher dividend and sporting a higher stock price. You will not get rich over night but over the long haul you should see your investment appreciate nicely. KO is currently 32% of my portfolio.

    Take care,
    Frank

  3. I’m with ya, DM, I just doubled down on KO myself. I think this is going to be one of those things where everyone else is going to be kicking themselves for not jumping on the opportunity in the coming years. Cheers

  4. Wow, so many investors (myself included) have been buying up shares of Coke recently. It’s nice to see Coke continue the tradition of high dividend growth as they announced another nice dividend raise to .305 ! Have a Coke and a smile !

  5. A true dividend growth core holding! Nothing wrong with adding some shares of well managed stalwart. I certainly trust the management to continue to navigate the downward trend and find ways to continue to expand revenue and find additional cost savings.

  6. As I clicked on the headline to read DM’s article, I had a feeling that this recent buy was going to be KO. What less can one say about KO? The brand is ubiquitous.

    I also picked up KO the other day @ $37.50. My only regret is that I didn’t have more cash parked on the sidelines, otherwise I would have bought more shares.

  7. I bought Coke last week as I needed that to balance out my portfolio of high growth stocks. When starting out I always tell people buy companies that have been around for decades and will be around when you’re gone. The amazing thing is Warren Buffet has a 50% yield on his Coke Shares that he bought in 1987. Every 1.5 years he earned back his original investment.

  8. DM,

    It has been hard to resist buying KO with these recent prices. China and India also provide excellent growth opportunities for Coke as their sales volume has seen a healthy increase recently in both countries. As I consider my March stock purchase I am kind of rooting for Coke to low so I can pick up more. Congrats on the $36.60 increase and the new site layout looks great!

    Take Care.

  9. Thanks for the article. You are an inspiration to me and my wife. I hope you fulfill all your goals. Coke is and will always be a good investment

  10. Dividend mantra, what are your thoughts about Loyal3? They sell Ko on there no fee platform. I have bought Ko through them and had no problems. This could be huge for the small investor as they also have a handful of other heavy hitters like Kellogs,Mcdonalds,Hersheys,Target,Unilever,Walmart,And even Berkshire hathaway.As you know fees can be an investors nightmare. God bless

  11. I added some more KO shares to the collection earlier this week as well. It’s important to remember that just because we as shareholders may not be able to see a clear path forward from here, doesn’t mean a way doesn’t exist (which share price drops sometimes seem to infer). A company as large and valuable as KO, with a solid management team in place, will continue to innovate and explore new growth opportunities that we may not even know exist right now. KO will be around and growing for many years to come. And though the KO 20 years in the future may not exactly resemble the KO of today, that isn’t necessarily a bad thing.

    Traders will keep the price fluctuations bouncing up and down on the news of the day, but those investing for the dividend growth over the long haul will stick with KO through the soft periods and continue to be rewarded in the long run. Just my two baht 😉

  12. Jason, I really enjoy reading your blog. I have teetered back and forth on KO since I started actively investing in early 2012. It was one of the stocks on my shortlist when I initially got into the stock market. Instead I picked CCE to invest in at the time. Back then I paid no attention to dividends, and the reason I took CCE over KO was because it was a bit cheaper at the time and it still exposed me to the the markets that KO operates in. Fast forward to 2014, I decided to re-focus my investment strategy around dividend income. At the turn of the new year I decided that around March 1, I would liquidate CCE and replace it KO because KO has a better dividend. Shortly I made that decision, CCE raised its paltry dividend. It is the 5th consecutive year it has been raised and is now yielding 2.13%. CCE has been a fantastic growth stock for me, as of today I have over a 60% gain on it over the course of two years. I really can’t decide if I should still replace CCE with KO, or simply add KO to my portfolio, or forget KO all together and increase my stake in CCE. I buy 3 times per year, and next week is one of them. I am also looking hard at T, DOW, COP, AZN, and WFC.

  13. Bryan,

    You can definitely do a lot worse than Coke. It’s no steal, but after the recent dividend increase this stock’s yield is very attractive here.

    Hard to say what’s going to happen with GMCR, but I like the deal. It allows them a lot of potential on the upside, and the downside is limited by the fact that they will still have 10% equity in a fast growing coffee company. Seems like a win-win to me. 🙂

    Thanks for stopping by!

    Cheers.

  14. Frank,

    I agree. Impossible to say exactly how well Coke will perform over the next couple decades, but you can be sure they’ll still be around. People don’t just stop drinking beverages, and KO has their hand in so many different types of beverages it’s just about impossible for the company to fail outright. That allows me to sleep well at night. And I like sleep. 🙂

    32% is strong. I admire your conviction in the company! I hope Coca-Cola continues to serve us well for many decades!

    Best wishes.

  15. Kevin,

    Glad to have you on the Coca-Cola train. 🙂

    I think we’ll do well here with KO. Could go anywhere in the short term, but I’m confident about their long-term prospects.

    Thanks for stopping by.

    Take care!

  16. Captain,

    Have a Coke and a smile, indeed! Here’s my smile after the dividend increase —> 🙂

    Nothing wrong with buying shares in Coke here, in my opinion. No steal, but it rarely is. Just a solid company trading at a fair price.

    Best regards.

  17. W2R,

    I’m with you. Buffett chastised management a bit when he advised them to not be complacent, and I think that advice may have at least partially been behind the GMCR move. It’s a tough economy around the world, and KO isn’t the only one struggling with growth. But over the long haul there’s going to be more people walking this planet, and they’re going to drink something. The odds are good that whatever they’re drinking will be a KO or PEP brand, and I own both. One day I’ll own some alcoholic beverage companies as well, and then I’ll have it all on lock down! 🙂

    Cheers.

  18. DM, On a non-KO related note, you mention that your tax hit was $2,777. Do you mind sharing how/why you had to pay that much for taxes? Was it from the passive income + bonuses, or do you not take any with holdings? I would have assumed you would do everything to minimize your taxes. I agree that if we receive money back from the Fed, we’ve over-paid during the year, but in an ideal world, shouldn’t we end up having to pay ~$500?

    Thanks for your thoughts.
    Liam

  19. Dividendasaur,

    I hope KO stays low for you so you can pick up some shares and join us! 🙂

    A 3.3% yield on KO is a gift. And I’ll gladly take it.

    Best regards.

  20. Chris,

    Thanks for the kind words! I’m glad you and your wife find some inspiration here in what I’m doing and writing about. That’s why I do what I do. 🙂

    And I agree with you. Hard to pass up KO at today’s price. Historically a great investment, but they do need to stay on their toes. Complacency kills even the best businesses.

    Cheers!

  21. Chris,

    Loyal3 is interesting. As they say, there’s no free lunch in life. There were a number of firms like Loyal3 a few years back like Zecco and Freetrade, but over time they’ve disappeared. I have no idea if Loyal3 will be around over the long haul, but I’d have my concerns. And if/when they decide to start charging, then what? I also hear that they don’t execute trades immediately, but instead pool your money with others’ and make big trades all at once – from what I understand of it.

    It seems like a good service, but would I feel comfortable having $100k invested with them? No. And so if I don’t feel comfortable with $100k then I don’t necessarily think I’m comfortable with $1k either. But I’m just really conservative with my money like that.

    I hope this helps!

    Best regards.

  22. KO is a solid buy, I bought a few shares this morning with dividends that were sitting in my account (gotta love reinvesting that money!). Thanks for the analysis of the company, it shows that we can still invest in KO with confidence when most investors are fearful.

    I also recently bought BP, CVX, MDT, and PEP. MDT is only yielding 2% or so but is a solid company. The shares I bought in BP will more than offset MDT’s low yield. Why am I buying MDT? Well, along with JNJ, I plan to add to my healthcare sector because it is underweighted in my portfolio right now.

    Keep on trucking!

  23. Tyler,

    I appreciate your two baht. 🙂

    I agree. KO is a solid company for the long haul. Impossible to say where the stock price is going over the short term, but we’re not in this for the short term. This is a long play for me, and I’m confident that KO will continue increasing its dividend for the foreseeable future. And with that, I’m pretty happy. I’m hopeful that as the worldwide economy improves, KO’s volume growth will pick up. We shall see.

    Thanks for stopping by!

    Best wishes.

  25. bincitybandit,

    Thanks for the kind words. Compliments like that make my day. Super glad you enjoy the blog. 🙂

    I don’t honestly follow CCE, so I’m of limited help. However, taking a quick peek at it shows it’s done pretty well over the last five years. So good for you. I’d personally rather have exposure to Coca-Cola itself over its bottlers over the long haul, but it seems CCE has done very well compared to KO over the last five years.

    If I were you, I might consider just keeping the CCE and then owning KO as well. Nothing wrong with that, right? Why choose one or the other?

    Good luck with the decision!

    Cheers.

  26. Matthew Gil,

    You guessed right, my friend! 🙂

    Great job picking up some KO at a great price. I think you and I will be very happy shareholders over the long haul. I feel pretty comfortable with my KO allocation now, so it’s time to look elsewhere for the time being. But I love owning a chunk of Big Red.

    Best wishes.

  27. Charles,

    Buffett has done pretty well with KO, but there are few investments he hasn’t done well with. Of course, many people still think he should have sold it in the late 90s when it was overvalued, but I’d say Buffett does well doing his own thing. 🙂

    I’m no Buffett, but I can spot a good investment for the long haul. And I believe KO fits the bill here.

    Thanks for stopping by.

    Best regards!

  28. Liam,

    Great question there.

    The tax bill was due to the fact that I didn’t pay in any quarterly estimated taxes last year. However, that will change this year as my dividend income and blog income is starting to become sizable.

    So before I even started importing my 1099 statements I was already short by quite a bit. Which is frustrating because I claim a 0 withholding. Factor in almost $4k in dividend income and almost $7k in online income and I’m left with a pretty big tax bill.

    This year I’ll be paying estimated taxes to try and close out my tax year fairly even.

    I hope that helps!

    Best wishes.

  29. Spoonman,

    Great job picking up some shares around the same time. Great minds think alike!

    Solid buys there. I own a piece of all of them as well. I agree with you on MDT. I really wish I would have bought more when I did. They were quite cheap back then with a P/E ratio of 11 or 12, if I remember right.

    I’d love to add to my healthcare holdings as well. I’ve got some solid players in the lineup with JNJ, BAX, and MDT. But I’d love to round those out with another strong holding.

    You keep on trucking too!

    Best regards.

  30. I added to my KO position yesterday in preparation for the KO dividend increase. I was happy with the 8.9% raise. However, WMT today announced a 2% increase which was very upsetting considering their low pay out ratio. Should I be re-considering my WMT stake?

    We always seem to be buying and considering the same stocks at the same times. Congrats on your recent KO purchase. That WMT 2% dividend increase today really hurt.

    Mike :o)

  31. Hi Chris,

    I am in the process of doing a move from Sharebuilder as I have graduated from purchasing fractional shares (it will happen to you eventually if you keep on going). I am moving via an In Kind Transfer to Vanguard, the Brokerage side. There was a point where I was purchasing in over 40 positions at a time in Sharebuilder, I calculated if I didn’t purchase greater then or equal to $150 in each per transaction that the amount of fees incurred were cost prohibitive. I see Loyal3 has no fees but there is a cost built in somewhere. Be careful, as well, with the policy and cost to transfer your shares to another brokerage. Sharebuilder is very fair, partial transfers are $15 per position up to $75 max per transfer and Full Transfer is $75. I have seen others that allow you to purchase small charge very high amounts to transfer out (Betterment charges $1000 last I looked at the policy, if you have $100K with them then you get a 1% hit if you want to use a different broker, that is a lot, and if you only have $25K with them…do the math!). Not sure what Loyal3’s policy is with respect to this but I believe in the long run it is better to use a brokerage that has an ETF you can buy/sell with no fees (like Vanguard) and work the balance up to be able to purchase your target positions over time. That way you can still be getting a fair market return (or not depending on Mr Market and the ETF) as you get ready to exercise your long term position. Check out:

    http://finance.yahoo.com/q/hl?s=VIG+Holdings
    http://finance.yahoo.com/q/pr?s=VTI+Profile

    Both have some yield, the first invests in shares of the kind of companies we want for the most part, the later is Market weighted. So what I do is the ETF holding is my intermediate bank account and when it gets to a certain balance I can pounce on what is available for purchase at a decent price, etc…

    Best regards!

  34. I hate Coca-Cola, I’m rather fond of Pepsi, however I’m planning on buying a few shares myself of KO.

  36. I’m happy with the increase of 8.9% this year. Its a good pick up on any dip as they aren’t very frequent. 20 years from now of course today’s price won’t matter much.
    -RBD

  37. Conveniently, I just posted about Loyal3 today. While I didn’t address all of these in my article specifically, I’m comfortable putting some money in Loyal3 for a few reasons:

    1) Specific market timing is generally a fools game, and if you have a funded account with Loyal3, your trades can be finalized within 24 hours. This should be fast enough to capture any short-term value a holding presents.
    2) No-cost to transfer holdings to another brokerage. If trading costs change, then it is a simple matter of transferring my holdings out. If I have $10-15k invested and have saved 7-10 transaction charges plus credit card rewards, this should pay for any transfer fees should they change their policy.
    3) Most importantly, they are SPIC insured which should allow any investor to feel comfortable that in the case the Loyal3 fails and goes out of business, your assets are protected up to $500,000.

    I certainly can’t fault people for staying within their respective comfort zones, but would encourage people to do some additional research into Loyal3 as a possible addition to their brokerage diversification.

  38. W2R,

    Great comment there. I appreciate the perspective.

    I don’t use their services, so as a client you have a lot more insight than I do.

    Any idea on how exactly they make money? Spreads? I wonder how profitable of a business venture they could possibly have there. And these free brokerages have a history of not lasting very long.

    Best wishes!

  39. Great purchase. If I had more cash I would buy KO here all day long. Walmart’s 2% increase is horrendous. I will be dumping my shares tomorrow morning.

  40. Mike,

    I’m with you. WMT’s dividend raise was definitely a disappointment. I was shocked, to be honest. They can certainly afford a bigger raise.

    With almost any company that has a long dividend growth track record you can find an off year or two. I’m hoping this is just one of those for WMT. Definitely something to watch, however.

    Glad we’re on the same page regarding KO. A lackluster year, but it’s just one of many. The dividend raise was fantastic, and they certainly have plenty of growth ahead of them as more people consume more of their products.

    Cheers!

  43. dividendmom,

    Wow, nice! 30 shares at almost the same price. I guess we were thinking the same thing, huh?

    And congrats on 5,000 pageviews! That’s fantastic. Sounds like you need to celebrate with a cold can of Coke! 🙂

    Cheers.

  44. Lila,

    I don’t personally use the products and/or services of every company I invest in. However, with Coca-Cola I do tend to indulge in some of their stuff on the weekends. 🙂

    Best regards.

  46. RBD,

    Great point there. 20 years from now it won’t matter much if I bought KO at $37 or $39. At that point you’re looking at 20 years of reinvested dividends and a stock price that is multitudes higher. 🙂

    And I think the 9% increase was rather healthy. I thought it would be between $0.02 and $0.03 quarterly, and they split the difference.

    Best wishes!

  47. Monty,

    Wal-Mart definitely disappointed us. I was shocked by the increase. I definitely wasn’t expecting that.

    I’m not selling yet, but I’m certainly going to be watching WMT closely. A low raise like this usually indicates management is concerned about operations, much in the same way a big raise is generally indicative of a healthy outlook.

    I’ll have to research this a bit more. I know they’re going to aggressively growing the smaller stores, as that’s where a lot of the growth is. I think that’s a great strategy. But, yeah, what a crappy raise!

    Best regards.

  48. That’s the worst increase in 15 years for WMT. They could be trying to grow again etc, but with their very low payout ratio something is off. There are too many other opportunities out there atm. I would rather own KO, PEP, CVX, or even PM after the 2% increase. Retail has a 100 year history of boom and busts, so I’m not a huge fan of the sector either. I may regret selling my shares later, but oh well 2% increase with their very low payout is horrendous. I’ll just purchase KO, PEP, and CVX with the proceeds.

  49. I also wanted to point out that the smaller stores didn’t appear very profitable for Walmart according to some articles I have read. They are still trying to work out how to make them more profitable. I was an executive level manager for Winn-Dixie stores and we went through something very similar a few years before the company filed for bankruptcy. We purchased a ton of Jitney Jungle stores to get a foothold in the smaller store types. It didn’t work out. lol. How does Walmart go from high dividend increases every year for the last 15 years to 2%? Heck that’s what AT&T gave this year at a 5.5% yield. Man it fires me up. lol

  50. Monty,

    You’ve gotta be able to sleep well at night. If an investment has you anxious and worked up it’s probably time to let it go. I think you’re making the right choice selling WMT here.

    I certainly can’t blame you for selling. This dividend increase doesn’t even keep up with inflation, so it’s really not meeting my needs. I’ll have to seriously reassess how I feel about the company’s prospects going forward. The one bright spot is that they reported pretty solid growth in online, and that’s where they’re facing Amazon head on.

    But it sounds like it’s time for you to move on and invest your hard earned cash in something that will produce better dividend growth results. I might not be too far behind you, but I don’t want to act too quickly. I gave Intel 7 quarters with no growth at all.

    Cheers!

  51. It probably need not be said, but KO is a great purchase. I bought some a few days ago and will buy some more next month. Great purchase for a long term investment.

    The reason I like KO is because I believe it will be around for years to come. I try to buy things that, will be around 10, 20, 30 years from, or at least things that I think will be around that long. The list of stocks I can buy is limited because of this but KO does make that list.

  52. I have been reading your blog for the last couple of days, and I must say that I’m quite impressed by your achievements this far!

    That’s why it makes me glad to see that you’ve decided to purchase more of KO. I myself bought 100 shares of Coca-Cola just two days before you, at the price of $37.50. Now it feels even more as a correct decision, seeing so many others do the same. 🙂

    Since I am from Sweden I mostly own stocks at the Stockholm Stock Exchange, such as H&M, Skanska, Volvo, and several other major Swedish companies. Coca-Cola is thus my first and only American stock (yet), and one that I’m really proud to finally have in my portfolio. I intend to hold on to it for a long time. Just like you I believe it will be a great investment in the long run.

    Now, I think I will have a coke while watching Sweden play Finland in the ice hockey semi-finals of the Olympics. 🙂

  53. Hi Jason,

    I also “indirectly” invest in CO for 2 weeks now. I sold 6 put-options of CO. So in January 2016 someone have the right to sell me 600 shares of CO for 40$ per share. For this deal I got 5.85$ per share. So if CO is in two years under 40 $ I get CO for effettive 34.15$ per share. If CO is more espensive than 40$ then I have gain 5.85*600=3.510$. For this deal I need a margin of 6.100$. So my annual gain will be √1+(3510/6.100)=25,5% p.a. or CO for 34.15$ per share, sounds good for me.

    P.s.: How do you calculate the value of a company with the dividend Discount model?

  55. I have 10 Titan stocks (substantial positions) and 4 of those 10 I classify as Super Titan stocks (largest allocations that I also DRIP invest). JNJ, PG, XOM and WMT are my Super Titans. I cant have one of my Super Titans acting a fool, so I’m going to replace Walmart with Pepsi. The problem with PEP drip is they charge like $2 per trade, so it’s not optimal. I don’t like supporting Tobacco companies but I might have to purchase PM to replace WMT as my 4th Super Titan. Man I’m pretty nerdy.

  56. KO was my first US stock many months ago. One that you, Jason, helped me come to the conclusion that it would be the bedrock of my US dividend portfolio. Thanks for the great write up!

  57. Pingback: Dividend Reads for the Weekend | The Dividend Guy BlogThe Dividend Guy Blog

  58. Congrats on getting so much income that you owed a lot of taxes! You should probably check out the rules for how much you’re allowed to owe the IRS at the end of the year. You may need to start sending in quarterly payments soon (or, while you’re still employed, just having them withhold a bit more). You DO NOT want to waste money on IRS fines!

  59. I actually used Loyal3 and it was my favorite out of Sharebuilder, Scottrade, Vanguard Brokerage. I did end up closing the account. In all honesty I feel it has to be too good to be true. I didn’t feel comfortable parking a large some of money there. Although I drip I usually drip pretty large sums. If I were doing $25-$50 per month I wouldn’t have worried at much. I have to say I was extremely impressed with Loyal3.

  60. I know people are mentioning the insurance. If you research Berney Madoff’s firm, he was SPIC insured as well and we all know how that turned out.

  61. Nerd Update…. Walmart stock was kept, but position is cut in half. The other half initiated a position in Colgate Palmolive.

  62. Well it would take a lot more research that I don’t believe you or I have access to to be able to qualify your allusion to Madoff. SPIC insured means you are covered in terms of which shares you own (publicly traded shares). If you invested in XYZ Ponzi Company and they are no longer in business then you cannot expect to actually own anything of value that is worth transferring to another brokerage. On the other hand if XYZ Ponzi Company sold you real shares in real stocks on board there should be no reason you wouldn’t be able to take those with you, I doubt this is the case in the Madoff ordeal.

  63. Honestly don’t understand your comment, but I can be a tad slow. There is a reason he held the insurance for the underlying assets? I also believe MF Global held that insurance. Each person has to make decisions that they feel comfortable with when it comes to brokerages. I will admit that I’m on the overly paranoid side when it comes to my hard earned money. The way I see it is why risk it for a dollar or two. GL

  64. Well since I posted that I have been looking through websites and videos trying to see if the clients of Madoff actually had real statements about stocks they purchased like we get from TD Ameritrade, Schwab, Vanguard, etc… or if they were just cutting checks to the firm (or Madoff) and hoping for the best. I don’t see the answer, I believe the facts have been obscured, perhaps for obvious reasons. The real scary side of it is how could the SEC not know it all along when this firm was pumping around 10% of the trade volume?! So now I shut up!

  65. I’ve seen some interesting analysis of Coke lately. I’m sure I own a piece of it as an index investor, but I’m intrigued by your breakdown. Do you think health concerns (or, just a change in the way people want to consume sugary drinks) pose a real risk for products like Coke?

  66. Jason, great analysis of Coke, it’s refreshing to see a post that is contrarian and independent in it’s evaluation of Coke. There is a lot of negative news about Coke, but most of them ignore the strong factors working it’s favor – to quote Charlie Munger

    (1) much Pavlovian conditioning, (2) powerful social-proof effects, and (3) wonderful-tasting, energy-giving, stimulating and desirably-cold beverage that causes much operant conditioning, we are going to get sales that speed up for a long time by reason of the huge mixture of factors we have chosen. Therefore, we are going to start something like an autocatalytic reaction in chemistry, precisely the sort of multi-factor-triggered lollapalooza effect we need.

    thanks
    Hari

  67. I guess my question for you Monty would be why would you have any assets with any brokerage if you aren’t comfortable with what SPIC insurance does or represents? At some point you have to take a leap and trust a brokerage, so what carries you into the position of trust with a particular one?

    If anything, I see Loyal3 going the route of a Zecco and getting acquired or bought out because they aren’t generating enough revenues to keep the batch trading free. Since I’m not buying into some “fund” and am buying directly into specific equities, my visibility is completely different from those with Madoff.

  68. Loyal3 currently has no transfer fees should you wish to move your holdings elsewhere. For the retail investor, they are completely fee-free. I have yet to see a single disclosure about costs to individual investors for any account maintenance, transactions, or transfers. They are supported by their Social Stock Plan management for various equities and their role in various IPOs.

  69. Monty,

    Sounds like you made an excellent choice by reducing your exposure to WMT. CL is a tad rich here, but it’s quite a rare occasion to see it not richly valued.

    CL is one that continues to elude me. I’m hoping to one day have a position in that company before I’m all done.

    Cheers!

  70. Dexter,

    I’m with you. Large companies – even major blue-chips – can and do fail. There are only a handful of them that you can feel fairly confident in betting that they will still be around 30 years from now. And I’d be willing to take that bet with Coca-Cola. Hard to say if it will still look the same, but people have to drink something. Maybe traditional red can Coca-Cola won’t be around anymore, but I’m confident that KO will still be around manufacturing water, juices, teas, sports drinks, etc. decades from now.

    Cheers!

  71. I like KO here but I’m really wanting to average down my cost basis. I’ll probably end up regretting that decision although it’s not far from giving me a chance to do so. The currency issues will sort themselves out so those aren’t really concerning me. I’m curious to see what KO/GMCR do with the Keurig Cold. My guess is it’s going to be for some of KO’s non-namesake brands. Unless the Keurig Cold changes a lot, a la Sodastream, I don’t see how any kind of cola products could be incorporated. Of course KO might not even want to approach that as it would lead to domestic growth of their product in one form while leading to declines in another. So it’d probably end up being neutral for the company. I was surprised to see all the “KO is doomed” talk after the earnings release. I’m not worried about them at all.

  72. Henrick,

    Thanks for stopping by from Sweden! Great to have a reader from across the globe. 🙂

    And congrats to you for branching outside of your comfort zone and picking up 100 shares of KO. I think you’ll be very happy with your decision. Not only did you diversify outside of Sweden’s market, but you actually bought a global company that operates around the world. You just increased your diversification in a big way.

    And congrats to your hockey team. Looks like they’ll be the gold medal game! 🙂

    Thanks for stopping by.

    Best regards.

  73. You are right. I have most of my stocks registered in my name with the Transfer Agent.

    If Vanguard or Scottrade were to ever have any issues the Federal Government would be involved in a heartbeat. This makes me feel more comfortable using them. I personally just feel better with a very large institution with years in the business. I personally would feel more comfortable with Sharebuilder at $1 per trade since it is owned by ING. I’m not trying to say anything negative against Loyal3 (I actually prefer their platform to any of the others) its just my reasoning for not staying with the company.

    Berskshire Hathaway doesn’t even have a drip setup with their transfer agent. Why would they pay this new small company to sell their shares? These are just questions that I asked myself. I’m paranoid is all. I really like Loyal3’s ease of use and customer service. There was something odd about registering shares that I wasn’t crazy about either. They said I had to request it through my broker where Scottrade let me submit it directly. Just seemed odd and as mentioned, I’m paranoid a tad. lol

    Heck if I know though. GL

  74. Jonas,

    Can’t go wrong with an annual return of 25.5%, that’s for sure! I don’t use any margin, however. What you see in my portfolio is mine completely. I own everything and owe nobody. I’m not saying margin is bad, but I choose not to use it.

    As for the DDM, I use a spreadsheet for my analysis. You can get the same spreadsheet I use from Matt Alden over at Dividend Monk:

    http://dividendmonk.com/dividend-book/

    However, a spreadsheet isn’t really necessary. You’re basically just looking at the current dividend and the growth of the dividend to try and approximate the fair value of a stock.

    You can read more about the DDM here:

    http://www.investopedia.com/terms/d/ddm.asp
    http://en.wikipedia.org/wiki/Dividend_discount_model

    I should write a post on this some time, as I use the DDM analysis all the time.

    I hope that helps!

    Best regards.

  75. I think you are right. CL seems very pricey. I don’t have your patience level, so I ended up pulling the trigger. lol

    PS: You need to get a forum setup man!!!!

  76. Joel,

    Thanks for the kind words! I’m glad that you feel comfortable owning a piece of KO. I’m willing to put my a portion of my hard earned cash on it, and believe me I do work hard for my money. So I don’t take any investment lightly. 🙂

    Glad you find some value in what I write here. I hope you stay in touch!

    Take care.

  77. Debbie M,

    You make a great point there.

    I didn’t elaborate on it, because I didn’t want to get off track, but I actually skirted the fine by paying more in 2013 than 2012. I knew I was going to owe more than $1,000 this year because of my dividend income and online income, so I started checking my total withholding late in the year and compared that to what I paid in 2012. I realized I was going to come a little short, so I had my employer withhold an extra $500 from my December commission check. As long as you pay more in the current tax year than you did in the previous tax year you don’t have to pay the fine for owing more than $1,000.

    However, this year I’m going to have to pay quarterly estimated taxes. Which is a good situation to be in. 🙂

    Thanks for adding that!

    Best wishes.

  78. DB40,

    I think health concerns are a problem for many companies, not just Coke.

    However, that being said I think that KO is one the front lines of that concern. And I think they’re making moves to adjust. For instance, they’re rolling out Coca-Cola Life in Argentina and Chile. Coca-Cola Life uses a combination of stevia and sugar for sweeteners. It has appx. 60% less calories than regular Coca-Cola, and from what I’ve read it’s been a hit down there. Also, Coca-Cola sells many products that either have no calories or are low in calories. For instance, bottled water, low-calories sport drinks, teas, etc.

    I think it’s their diversification not only in geographical markets, but also products that really saves them.

    Thanks for stopping by!

    Best wishes.

  79. Hari,

    Well, I’m with you on the taste. I don’t drink as much soda as I used to because I’ve been on this mission to get in the best shape of my life. So during the week it’s mostly flavored water. However, on the weekends I splurge. And I really look forward to my splurge on PEP and KO soda products during the weekend. It’s something I look forward to all week. They just plain taste good, right?

    Maybe that’s just me. I don’t know. Everything in moderation!

    Cheers.

  80. JC,

    It’ll be interesting to see what happens with the strategic partnership.

    Although, from what I read of it (and how I interpret it) they plan on developing new products so that Coca-Cola can indeed allow people to make their namesake product at home. That’s the way I took it, anyway.

    I’m not sure how much of a hit that will be, because as a Coca-Cola drinker myself I’d prefer just to open a can of it. If we’re talking huge savings here I might be interested, however.

    And I’m with you: I’m not worried about KO at all here. Currency issues will straighten themselves out over time and that will turn from a headwind into a tailwind at some point. Volume growth was my biggest concern, but not every year can be a blockbuster year.

    Thanks for adding your thoughts.

    Best wishes!

  81. I have been thinking about angling more towards Vanguard ETFs in the future for my dividend portfolio. I’m digging VNQ, VPU, VDC, DYM and VIG. I already started buying VNQ. I like 0 fees. What are your thoughts on these ETFs?

  82. I’m not sure why the Feds would become more involved with one over the other, fraud would be fraud, although I do understand your point.

    Berkshire doesn’t have a drip program with Loyal3, it is simulated with batch trading on a daily basis. There are only currently five of the 55 equities offered that currently pay Loyal3 fees.

    I can’t speak to the registration issue, that isn’t something I’ve encountered with them.

    Ultimately, best of luck with your respective choices, I’ve enjoyed our discourse! 🙂

  83. I was disappointed in WMT too. I am putting it on probation to see what happens in the future. While I like to have higher dividend growth, 2% is better than a freeze or cut. With their history of raising dividends, usually much higher, I am in a wait and see pattern.

  84. Why not sell part of CCE to buy into KO? Buy low, sell high, right?

    60% means this stock definitely outperformed the averages, and the industry, during that period. Just because something has done well doesn’t mean it will continue to outperform in perpetuity. You don’t need to decide between one or the other. Have some of both! Take some gains from CCE and get some more gains from KO in the future.

  85. WMT definitely has the scale, but with a payout ratio of 35% it seems even if earnings don’t grow and they decide the future doesn’t offer much growth opportunities, they could potentially double that to ~60% (generally considered an upper end payout ratio that is sustainable).

    My concern is that in 20 years it doesn’t have a ton of room to grow. $400B in sales, without much growth, makes it tough to move the needle much.

  86. ed69, I agree with you. I own WMT as well and was definitely caught off guard. But, like you said, 2% is still more in less in line with inflation. I think its ok to give a company a break every once in awhile….Lets see what they raise in 2015….I’m guessing its closer to 7-8%…if its around 2% again, then it may be time to really consider another place to put that money…

  87. @Monty – The ETF portfolio I like looks mostly like this:

    BND Vanguard Total Bond Market ETF 7%
    BLV Vanguard Long-Term Bond ETF 7%
    VTI Vanguard Total Stock Market ETF 19%
    VXF Vanguard Extended Market ETF 6%
    VOO Vanguard 500 Index Fund 19%
    VEA Vanguard MSCI EAFE ETF 9%
    VWO Vanguard FTSE Emerging Markets ETF 7%
    VXUS Vanguard Total International Stock ETF 10%
    VNQ Vanguard REIT ETF 16%

    In those proportions it has an average expense ratio of only .0926%. Some say the REIT portion is not proven as there were some dips at stock dip times, others swear by them. Others say that REITs should be in a tax deferred account as opposed to taxable, it makes a small difference. I like the above and then adding the following:

    VB Vanguard Small-Cap ETF – exp ratio .10% – Boost your small cap exposure a bit
    VO Vanguard Mid-Cap ETF – exp ratio .10% – Boost your mid cap exposure a bit

    I don’t mix the proportions of the mid/small cap boost with the main portfolio conceptually, not sure how it will work out long term it sure seems to thrust along so far. If you want to get some tax free bond exposure, though I believe they should be in a separate category from general Bonds you can add the following though it has a $3K minimum and there is no exact ETF to match it, there are other muni ETFs but I never use any that have expense ratios higher than .25%

    VWAHX Vanguard High-Yield Tax-Exempt Fund – exp ratio .20%

    These sorts of Index Portfolios are outside the discussion about investing in Dividend Growth stocks, however, the DYM and VIG address the issue though you don’t have control over allocations by company at all, that can be good or bad depending, not sure how it will be long term, opinions vary and history is no indication or promise of future performance!

    Best regards.

  89. Are you not concerned about the soft drinks sales volume decline ? mainly on the low sugar products like zero and light. People are drinking less soft drinks and that’s not good for business, and many people moving to “make your own soda at home” products like Sodastream. Is Coca Cola good company.. yes will they sell less soda in future.. i don’t know. if i had to speculate i would say yes. Will it be able to perform as good as they had? yes maybe. cost efficiently is improving all the time and cost savings helps, also buying companies, products, partnering and making agreements helps in the big picture like the recent Green mountain agreement. Only one thing keeps me not buying coke now. The question: Will soft drink sales continue to decline as people moving towards healthier lifestyle?
    But at the end i think i will be buying more coke shares just based on the fact that when you have a lot of money you can make much more of it, and when you have more you get even more and so on 🙂 And coke have that around $17 billions. only wish i had even 1% of that 😉

    So let’s make consensus! These are fun.
    Soft drinks sales -2%
    other products +3%
    new stuff ?
    biggest lose in South America.
    biggest gain’s in Asia ( could also be in north america because: PS4 new Xbox, New Diablo III, Elder Scrolls Online & new World of Warcraft. Gamer’s needs electrolytes and energy after training or competition )

    cheers!

    good buy thumbs up!

  91. Sorry was just linking a couple of articles that I read about the government taking interest in systemic risk and large mutual fund/investment companies. I don’t have many hobbies, so I read all day long. lol. Thanks for the conversation!

  92. Great buy, you really can’t go wrong with a long term investment in Coca-Cola.

    I’m looking to start a position in it’s competitor, PEP. Then I’ll own all three big beverage companies: KO, DPS and PEP. In 2012 the three firms held a combined 88.0% market share in the carbonated soft drink industry in the United States: The Coca-Cola Company (42.0%), PepsiCo (29.3%), and Dr. Pepper Snapple Group (16.7%).

    I basically own a small piece in the entire carbonated soft drink market! To me that’s exciting.

    Take care

  93. ed69,

    Great point there.

    As I mentioned above, not every year is going to be a blockbuster year for every company. And that’s really why we diversify. This year, PEP knocked it out of the park…but they had lackluster raises the previous couple years. WMT cranked it way up last year, but this year it’s only 2%. In the end, it’s important to keep perspective, average things out, and diversify. That way when one company is struggling a bit you’ve got other businesses keeping the portfolio humming along.

    Thanks for adding that!

    Best regards.

  94. Exponential Dividends,

    Good for you! That’s very exciting indeed to own a small piece of the entire carbonated soft drink market. I’d say you’re in an excellent position. Keep it up!

    I don’t own a piece of DPS yet because of the lack of international exposure, but it’s been performing very well lately.

    Cheers.

  95. Pingback: Recent Dividend Increases

  96. investingIdiot,

    Yeah, I also wish my balance sheet looked something like Coca-Cola’s – with $17 billion in cash lying around. 🙂

    It’s tough to say what Coca-Cola looks like 10 or 20 years down the road. Will they being selling less soda? Probably, but hard to say. Like I mentioned above, Coca-Cola Life is getting solid reviews in South America from what I understand. And there’s always a chance of a breakthrough in sweeteners. If not, they still have a ton of other products to anchor the company.

    Every company has risks and potential issues, but I think the potential risk-adjusted returns with KO here are pretty solid.

    Thanks for your perspective!

    Take care.

  97. I think I “spoke” (wrote) too soon. Apparently KO makes other products that I drink like orange Fanta. I do agree you don’t need to buy the products/services a company offers to invest in them. 😀

  98. Coke owns one of the major water bottling/distribution companies in Thailand. The name is Namthip Thai, fully owned subsidiary of Coca Cola as far as I can tell!

  99. Hey Jason,

    It was fun to see you pick up some more KO just days after I took the opportunity too. It is usually the other way around. It was a tough call for me because I like to hold some dry powder in reserve for that fictional correction. As I looked at it I saw two pretty substantial opportunities and re upped my allotment of KO and TGT!

    As far as KO goes I hear everyone saying they think its overpriced and are waiting to load up at $32. Can’t blame them..I would be a major buyer there too but I just don’t think it will get there for the following reasons:

    52 years increasing dividends

    500 brands, 3500 products?

    3.3% yield now

    KO is currently buying back..yes?

    It seems there is a big demographic in countries near the equator that is moving into the middle class and perhaps they might spend money on something to drink?

    Currency issues are an issue right now and should revert like you said.

    Unmatched global distribution system

    Quality products

    10 % off now per 2014

    The downsides I admit are trends towards healthy lifestyles and the 15-25 demographic is purchasing other brands but maybe marketing can pull them back eventually? I guess that’s why KO is selling for 37 instead of 77?

    As far as TGT I think it would also be around 77 if it wasn’t for the credit card problem and slow start in Canada? So as I see it another opportunity to buy low. That is the idea no?

    I do have one question for you if I may? Occasionally people talk about how buy backs effect a stocks value. I was wondering if you have done much research on this topic or are planning a post on this? Specifically I was wondering if you have a good resource to see how much is being bought back and when this threshold becomes significant?

  100. Chris,

    Thanks for stopping by and adding that. You’ve definitely got the right idea. Buy high quality when it’s on sale!

    As far as buybacks go, there’s no doubt that it creates value. Reducing the float means there’s less shares to split the profits (and dividends) between. This allows EPS to get a boost, and it’s easier to boost the dividend as well because the payout ratio isn’t expanding and you’re paying less shareholders.

    That being said, buybacks aren’t always wonderful. As with anything life, there are benefits and drawbacks. You’ll sometimes see “buybacks” as just a backdoor to compensate executives with huge stock options. Just something to be aware of.

    It’s important to actually take a look at the shares outstanding after a company buys back shares. This will show you the net effect. You can find share counts in any number of locations, including the actual company’s own investor relations site. One site that I like to visit sometimes to get a quick view of shares outstanding over a certain period of time is YCharts. For instance, this is what Philip Morris International’s shares outstanding looks like over the last 5 years:

    http://ycharts.com/companies/PM/shares_outstanding

    I hope that helps!

    Best wishes.

  101. Thank you for sending that…great site for that info! Looks like PM and XOM are buying back 4-5% of their stock each year where KO is only around 1-2%. So now I would think that share buy backs for KO would be of minimal importance for argument sake?

  102. I believe your purchasing of companies that do stock buybacks should be commensurate with you diversification plan. It makes no sense to always go after only one or two goals when it comes to investing. We know the S&P 500 has returned x amount for the last 10 years on average but does that mean you are going to put that $1, your only dollar, as an investment entirely in the S&P 500? Well, you could but your risk factor is that of the S&P 500 and perhaps too volatile for the taste of the average investor. That is just an example. But when you look at these guys talking about this or that portfolio returning 19%/year or whatever you better believe they did not receive a 19%/year return on their entire asset base, it either didn’t happen, they are lying, or they are in denial! 😉

  103. DM, Thanks for the clarification. That does clear everything up in my head.

    I have a small real estate investment business and with the depreciation on the properties a lot of my income from those investment activities are eliminated.

    My goal this year is to increase my dividend income to $500/year in my taxable account, which will affect my personal taxes slightly, but that small amount will probably come out in the wash.

    Thanks again.
    Liam

  105. Stéphane,

    Great buys there. I think all of those companies should do well for you. I’m also interested in GE at current prices.

    Thanks for stopping by and sharing. 🙂

    Cheers.

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