Linked here is a PDF copy of my detailed analysis of The Coca-Cola Company (KO) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: The Coca-Cola Company engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates and syrups worldwide.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. KO is trading to at a premium to all four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, KO is trading at a 65.1% premium. A Star is deducted due to the high premium.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. KO only earned one Star in this section for 3.) above - it has grown dividends for at least 10 years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. KO did not earn any Stars in this section. In fact it had a Star deducted since the NPV of MMA Dif. is negative. That means for every $1,000 invested KO will earn $1,919 less than a MMA earning 5.11%.
Other: KO is a member of the S&P 500, is an Aristocrat and an Achiever. In addition, Berkshire-Hathaway (Warren Buffet's company) has long-held a significant stake in KO.
Conclusion: KO lost a Star in the Fair Value section, picked up one Star in the Dividend Analytical Data section and was deducted another Star in the Dividend Income vs. MMA section for a net total of negative 1 Stars, one less than my scale allows, which rates it as a 0-Star Avoid stock. Sometimes Avoid means Avoid, and this is one of those times. I suspect there is a reason Buffett is no longer buying KO, and I won't be either until something changes.
Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of KO.
What are your thoughts on KO?
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