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KO increased dividend by 2.56%

KO, Coca Cola increased the dividend by 2.56% making this dividend champion’s 57th consecutive year dividend increase.

The old dividend rate was 1.56 annual dividend payout (0.39 quarterly), the new rate is 1.60 (0.40 quarterly).

Our current fair value of the company is $35.44 a share so at the current price of $46.65 the stock is overvalued. In order for this stock to be marked a “buy” our three conditions must be met for us to buy the stock.

The three conditions that the stock must meet are:

1) in a correction mode – pass
2) the current stock price must be below a fair value – fail
3) the 5 year average dividend yield must be lower than the current yield – pass

Since only two of the conditions are met, we mark it a “HOLD”.

The current yield is 3.50%.

The 10 year YOC would be 6.33% with no dividend reinvestment and 9.50% with DRIP. This is a good dividend growth but it would not reach 10% YOC in 10 years at the current price even with reinvesting the dividends. The average 5 year dividend growth of this stock is of 6.80%.

The company share price doesn’t outperform the S&P 500 index in long term. If you invested 10,000 dollars in 1995 and held for the last 24 years, the stock average total return would be 6.83% vs 8.74% of the index, and your holding would grow to $47,568.28 dollars as opposed to $74,181.33 dollars of the index.

This makes this stock an acceptable source of income by a stable and solid dividend growth payer, but I would recommend adding this stock to a portfolio only when trading at a better price or when your portfolio is already matured. It would not be a good growth position when you need it the most in the accumulation phase.

Note, that during accumulation phase, I recommend seeking both – the dividend growth and capital appreciation. If you are a retiree and plan on living solely from your dividends then you do not need capital growth and this income stock is a safe investment.

Disclosure: Currently, I am long KO shares. It is in our watch list and since it is now ranked as “HOLD” I do not plan adding more shares to our portfolio at current price..

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