‘Have a Coke and Smile’

Written by GSCR Staff   
Friday, 19 September 2014 06:32

With the ‘new’ war pending in the Middle East, a contentious vote for Scottish independence, and a small cap funk here in September, we thought we would diverge from our normal universe today.

 

 

OK, so the tagline in today’s blog is dated. You may not remember it if you were born after 1980. The Coca-Cola Company’s (NYSE – KO - $41.79) old commercials were about the happiness and satisfaction one could enjoy from a simple soft drink. We highlight this stock for a change-up today in our normal market highlights to a topic we rarely discuss, dividends, in the form of yield and growth rate. KO offers a great opportunity to put a smile on your face by adding it to the core of your portfolio along these lines.

 

Coca-Cola has raised dividends 52 straight times! How is that for dividend growth? Right now the dividend yield is 3.1% compared to 2.9% for Pepsico, Inc. (NYSE – PEP), and 2.8% for Dr. Pepper Snapple Group, Inc. (NYSE – DPS). Not only is the metric good in comparison to competitors but also a great indicator of value relative to payout. Only 940 of over 6,100 U.S. equities have a dividend yield over 3% in one of our screeners.

 

The chart below depicts the 10-year price history of KO. The stock has more than doubled over that time.

 

10-Year Price History for KO

(Source: Google Finance)

 

MM.09.19.14 KO-10-year

 

 

While a 100% return in 10-years is usually not the risk-reward we look for in the small cap world, most would agree this is outstanding for a long term stock given the great dividend history for the Company. Finding new markets and introducing new products that catch on is the growth challenge for companies like Coca-Cola, but they are not going anywhere soon.

 

We would not be doing our job if we did not take a quick glance at our other basic metrics. First, the technical analysis is very bullish from short to long duration in DMA. The forward P/E is 19 and the trailing P/E is 22. Check two. Finally, operating and gross margins check out above industry averages at 24% and 61% versus 9% and 46% respectively.

 

Having Coke (KO) to your core portfolio should keep you smiling for a long time!

 

Have a great day!

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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