I’ve finally made the decision to initiate a position in KO. I have owned Coca Cola before via a DRIP about ten years ago, but had to liquidate the position. This time I plan to hold it forever.
Funds in my taxable brokerage account (where I want to build this position) are tight, and since I am also purchasing some MCD I only have around a thousand dollars available for this initial purchase – thank god for free trades!
So, why am I purchasing Coke? One big reason is that Buffet loves the company. I know that just blindly following another investor isn’t considered particularly innovative, but I know my limitations. I am not a good stock picker – I’ve learnt that by past bad experiences. I’m happy to steal the investing ideas of those who are smarter than me!
Morningstar – my go to analysis source – values KO at $45, so my purchase price of under $41 seems reasonable. I don’t expect a screaming deal on quality firms like Coca Cola in this frothy market, I’m just happy not to seriously overpay.
The chief risk I see to Cokes future is consumers shifting away from the purchase of bubbly sugar (or fake sugar) filled soda as their beverage of choice. This may turn out to be the long term direction in the US, but there is still plenty of room for overseas growth in my view. Plus, Coke also owns a variety of other beverage products (iced teas, energy drinks, juices, etc…) that should allow them to pick up domestic growth in those areas.
Dividend wise, I have solid hopes for the future. While their current earnings payout is close to 60%, and I expect annual dividend increases in the neighborhood of 8%. It’s not spectacular, but decent enough given my starting yield.
Purchase of 25 shares of KO at $40.88, for a partial position ($2500 desired, more purchases planned) with a cost basis of $1022. Dividend yield at time of purchase is 2.73%. Dividend Reinvestment enabled. Initial dividend income $28 annually.