Dividend Increase: Coca Cola (KO)

Coca Cola (KO) announced their 2017 dividend increase of $0.02 per share, bringing the quarterly amount to $0.37 per share from last years $0.35.  Good for a 5.7% increase on the year.  This brings the current dividend yield to 3.59% based on the closing price of $41.23.  This represents 97 years straight of dividend payments and 55 years straight of a dividend increase.

The 2 cent increase falls short of my expectation for a 3 cent increase for the year (7.14%).  Disappointing to see the penny difference, but the increase still outpaces inflation.

This increase from KO represents 12 of my holdings increasing dividends so far on the year.

KO Dividend History:

The above charts reflects an adjusted dividend for stock splits.  Going back to 2005 thru 2017, the average increase of the KO dividend has been 8.45%.  The increase has historically taken place with the companies first dividend on the year paid in April.  That average growth is good for your income more than doubling during that 13 year time frame for a total growth of the dividend equating to 164%.

KO vs S&P500

KO is a pretty boring stock.  They make sugary beverages consumed around the world.  The last couple of years, we’ve started to see major cities proposing sugar taxes.  This and a strong dollar have created headwinds for KO.  To diversify its product line, in the last few years, KO has diversified by getting into healthier beverages that cater to younger generations.  The sugar tax does worry me a bit and I hope it’s not a trend that catches on.  1 local governments are overstepping boundaries and 2 it sets a scary precedent of local governments imposing additional taxes on junk and fast food or other things we like to indulge in.  So kind of the government to look out for us dumb people who can’t make good eating decisions and penalize people for eating  what we like.

Looking at the above chart, we see KO has slightly outperformed the S&P500 (not factoring in dividends).  This is good, but I’m hoping the plans KO has started to turn the business around kick into high gear.  I want better performance from the stock and it’s been stuck in a pretty tight range the last couple years.

KO Key Stats:

Market Cap: $177.8 Billion

PE Ratio: 27.48

Beta: 0.70

Dividend Yield: 3.59%

Payout Ratio: 83.64%

Profit Margin: 15.65%

Total Cash: $22.20 Billiom

Total Debt: $45.71 Billion

The dividend yield is real nice at over 3.50%.  PE is high for a beverage company.  Ahhh, that debt is high and the payout ratio is starting to get up there.  This ain’t a tobacco company.

Conclusion:

KO is in the middle of a restructuring plan to turn business around and bring back earnings growth. Recently, the Feb 9 earnings report brought a pretty decent 1 day drop on the stock price.  I actually placed 2 trades recently on KO, picking up 400 shares at 40.89 on Feb 10, and another 400 shares at 40.35 on Feb 14th.  Basically, I’m looking for the stock to return back to about $42 within the next few months, say around this summer.  Those 2 trades place my average price at $40.62.  On Friday, the stock closed trading at $41.23, representing a profit of $0.61 per share or $488 total.  Not bad for just a few days of non work.  As the stock approaches back around $42, I plan to short the August 42 or 43 calls, currently at $1.03 and $0.66 respectively.  This would represent a total profit potential of $2520 ($1104 change in stock price, $592 in dividends for 2 quarters, $824 from shorting 8 call contracts at $1.03) give or take depending on trade execution, good for a potential 7.75% return.  Since KO was near a 52 week and multiyear low, I figure there wasn’t too much risk in picking up $32,000 worth of KO stock.  Now, I am long shares of KO that I may never sell, but the 800 shares mentioned in this trade are more of a short term possible trade.  I like KO for the growing dividend and hope the turn around plans start to pay off.

For more on covered call writing trades, click here.

 

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