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.
I like how you call KO a core holding because it definitely is. I have about 6 of these type of equities in my portfolio at any given time. Occasionally, I add to my position or subtract as value affords itself. However, as you pointed out, this is a company that really rewards shareholders.
ReplyDeleteThanks for the support YI! I'm pretty confident these shares will remain in my portfolio for a long, long time.
DeleteCompounding Income!
ReplyDeleteI also believe that KO is a solid buy with the recent dip in the market. I think sometimes I keep Pepsico and CocaCola running myself with how much I enjoy and consume their products. I would love to scoop up more KO for my portfolio. Starting to get a pullback and a longer list of companies that I'd like to add to!
Yes I like both KO and PEP, but for different reasons. KO has the best beverage brands, while PEP is strong in snack foods. I see no reason to choose one company over the other, so I own both.
DeleteHi CI,
ReplyDeleteI agree with you on KO. It's certainly not a steal at these prices but when you look back after 10 years I think you'll be happy. A solid company like KO commands a little bit of a premium so I don't mind paying a little higher p/e for reduced risk. I'll likely keep adding small chunks of KO over the next month or two.
Good plan. I have purchased blocks of Coca-Cola on three separate occasions and never felt I buying undervalued shares. If you want to own a part of this business be prepared to pay a premium. While I feel value is very important, long term it is really the operating results of the company that matters. I think we'll be fine since we didn't pay extreme valuations for our KO shares.
DeleteI just looked at KO recently and from technical perspective it is in a good buy level. Of course it can always fall lower, but as far as now it is a good buy!
ReplyDeleteHey Martin!
DeleteYes it did drop lower, oh well hard to time everything perfectly. I'm somewhat concerned that equities in general are a bit higher than they ought to be. On the other hand I cannot predict the future so I'll continue to average into the market by making monthly purchases.