The company’s last dividend increase was in February 2013 when the Board of Directors approved an 9.80% increase to 28 cents/share. Coca-Cola’s largest competitors include PepsiCo (PEP), Dr. Pepper Snapple (DPS) and Monster Beverage (MNST).
Over the past decade this dividend growth stock has delivered an annualized total return of 8.60% to its shareholders.
The company’s return on equity has been on the decline over the past decade, falling from a high of 33.60 % in 2003 to a low of 27.40% in 2011. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 9.80% per year over the past decade, which is slightly higher than to the growth in EPS.
A 10% growth in distributions translates into the dividend payment doubling every seven years. If we look at historical data, going as far back as 1973 we see that Coca-Cola has managed to double its dividend almost every six and a half years on average.
The dividend payout ratio has remained at or above 50% over the past decade, ignoring last year’s spike caused by the onetime accounting gain referenced above. 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 close to fully valued at 19 times forward 2013 earnings, has a sustainable dividend payout and yields 2.80%. In comparison, PepsiCo (PEP) is trading at a P/E of 19.90 and yields 2.70%. For enterprising income investors, selling a January 2015 put on Coca-Cola with a strike of $40, could result in an entry P/E of about 16, if exercised. If Coca-Cola stock trades above $40 at expiration date, the investor would get to keep the whole premium of approximately $4/contract. Otherwise, just wait and look for a correction below $40.
Full Disclosure: Long KO, PEP and DPS
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