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:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
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:
- NPV MMA Diff.
- Years to >MMA
Other: KO is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. KO has a strong balance sheet and cash flows as a result of a relatively stable market with a dominant market share around the world. Volumes in KO's non-carb portfolio should continue to grow as the company expands distribution of its Energy Brands unit. KO's high exposure to international markets should offset small U.S. declines of the Coke unit. Coca-Cola Zero should drive trademark Coca-Cola volumes worldwide. Risks would include slower than planned growth and adverse foreign currency exchange rates.
Conclusion: KO earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks KO as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $53.95 and KO's NPV MMA Diff. would still be around the $3,000 NPV MMA Diff. that I like to see. At that price KO would yield 2.82%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is 8.1%. This dividend growth rate is below the 10.1% used in this analysis, thus providing a margin of safety.
I last reviewed KO on May 5, 2008. At that time the stock was selling for $58.77 as was rated as a 1 Star-Weak stock. At the time of this analysis, it was trading at $44.20, slightly below my $45.35 Buy Below price. At this level, KO is an excellent value.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. 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 had no position in KO (0.0% of my Income Portfolio) .
What are your thoughts on KO?