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Dividend Investing Stocks (Archived)

KO - The Coca Cola Company

Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.

  1. The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
  2. The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).

Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.

Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.

Sometimes a company will satisfy the requirements for both approaches.

In the September 2014 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

The Coca Cola Company

The Coca Cola Company NYSE:KO is a large-cap soft drinks company and its stock trades around $530 million per day. KO was organized in 1886 and has an established history of paying dividends.

The key fundamentals for KO are shown below.

Growth fundamentals for KO

YearRevenueEPS ROEDividendBook ValueEmployees
2003210000.89 31%0.442.9049000
2004219001.00 30%0.503.3050000
2005231001.04 30%0.563.5055000
2006240001.10 30%0.623.7071000
2007288001.26 28%0.684.7090500
2008319001.25 28%0.764.4092400
2009309001.49 28%0.825.4092800
2010351002.57 38%0.886.80139600
2011465001.86 27%0.947.00146200
2012480002.02 28%1.027.30150900

The fundamental data above shows that KO has broadly increased its revenue, earnings, book value and employees over the last decade. The current earnings are down from the 2010 earnings peak but is still higher than the 2011 result. KO still qualifies as a growth stock since the earnings are showing a general increase - not every year needs to be greater than the previous year. Since KO pays a dividend this gives investors the best of both worlds - a growth stock that pays a dividend. Also KOs dividend yield is quite good - which is currently about 3%.

Fundamental Analysis for KO:

The return on equity is very good and averages around 30% - KO certainly utilizes its assets efficiently to generate profits. The profit margin (profit to income ratio) is strong and around 30% over the last decade.

The current ratio (current assets to current liabilities) ranges from 0.9 to 1.3 which indicates that KO just has enough working capital.

The debt ratio (long-term debt to tangible assets) averages around 1.0 which means that KO carries a fair amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The total ratio (total liabilities to total assets) have increased from 50% to around 70% which means that KOs total debt is now 70% of its total assets.

The revenue for the 2013 fiscal year is projected to grow at 10% (based on the five year revenue growth trend). The earnings growth for the 2013 fiscal year is projected to grow at 9% (based on the five year earnings growth trend).

The forward PE ratio is around 16 (calculated from the five year earnings growth trend rather than from forecast earnings). The forward PEG is around 1.8.

The current business valuation would drop to around $17 if KOs earnings growth stops (with a 2.8% ten year Treasury bond yield).

KOs book value is around $7 and if KO does run into financial problems in the future this gives an idea of how far the stock price could drop.

The bankruptcy risk can be calculated using the Z-score. KOs Z-score is 4.0 which means KO is a low bankruptcy risk stock.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 23-Aug-2013 and this allows the reader to see how the stock performed over the next year.

KO had its 2013/06 quarterly results released prior to 23-Aug-2013 and this information is available for the analysis. The 2013 Q2 earnings showed an increase of 60% over the same quarter from a year ago (2012 Q2). The 2013-Q2 dividend is $0.28 for the quarter which is a 10% increase over the same quarter from a year ago (2012 Q2).

Overall the fundamentals are quite good with this large-cap stock which has a reliable history of paying a regular dividend. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in KO on the 23-Aug-2013 would give a purchase price of around $38.50.

The stock price performance is shown below in Chart 2. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.

Chart 2. Stock chart with earnings for KO

weekly Chart KO

As shown in Chart 2. above, KOs gained around 7% over the next year including dividends. KOs 2013 annual earnings declined by 3% over the 2012 fiscal year. KOs 2013 dividends were $1.12 which is a 10% increase over the 2012 fiscal year

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