Thursday, August 15, 2013
New Purchase - KO
32 additional shares of KO were purchased today which will boost my passive income stream by $35.84 per year. This purchase came with a 2.85% yield after commissions which I find fairly attractive for Coca-Cola. It's pretty obvious why an income investor would consider owning shares of this company. KO might be the best known company in the world for rewarding loyal shareholders, therefore I don't feel the need to explain this particular purchase in great detail.
Did I get in at a great price and outstanding value? No. Is KO likely to make me rich quick? No. However, it is one of but a handful of companies I consider to be core holdings. When the markets are heated, as they are right now, I think it's a good idea to snatch up the highest quality companies around. The margin of safety is low with practically everything on my watch list; might as well grab something I know I'll hold for decades. That was my main motivation. I also like XOM or CVX if I was forced to make another purchase this month.
KO currently has a p/e of about 20.6, not very spectacular to say the least. If you use operating earnings it drops to 19.1. The forward p/e is 17.2. I think it's worth checking out operating earnings because sometimes one time events skew valuations. For example, JNJ was listed as having a 25 p/e not too long ago. People thought the shares were ridiculously expensive. But there were a bunch of one time events/write offs in 2012 that nobody ever seemed to mention. With the recent earnings report, those write offs are no longer ttm. All the sudden its p/e dropped to 20. The difference between a 25 p/e and a 20 p/e is massive! Perhaps the KO valuation isn't as bad as it seems at first glance, but I'm not saying it's cheap!
The bottom line is that I expect KO's 50+ year streak of dividend growth to continue. I want to be a part of it for many years (possibly decades) to come meaning what I pay right now probably won't matter much in 10-20 years.