Valuation Question
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MBWorld Fanatic!
Joined: Jan 2003
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From: New York, NY
06 SV650S, 11 Santa Fe
Valuation Question
Ok so I'm looking at investing in a DRIP for a long term position in KO. I like the company and they've got great long term prospects. Current dividend yield is sitting at 2.9% and they have a history of growing the dividend at 11% which is good. Current Return on Equity is sitting at 41.9% which is above average and PE at 12.9 it is well below average. With a 5-year ROE of 36.7% and payout ratio of only 35% you can expect the book value to grow on average 23.8% year. That would mean that 10 years from now you could expect the book value to grow from 13.53/share up to 114.80/share. Since KO trades at a 5 year average of 5.5 price/book that would put the stock price at $632.60(excluding any stock splits). If we assume they remain at their average dividend yield of 2.8% I would collect an additional $82 in dividends over that time. Without reinvesting dividends that would come out to a compounded annual growth rate of 27.5%.
Looking at those kind of returns this is an easy choice to pick up for the long haul. That being said, despite the low PE Coke is trading at a 52 week high. With the exception of that brief pull back on the Libya/Japan news we've been in straight up mode for 2 years now. Those kind of factors make me nervous to buy right now. Any thoughts?
Looking at those kind of returns this is an easy choice to pick up for the long haul. That being said, despite the low PE Coke is trading at a 52 week high. With the exception of that brief pull back on the Libya/Japan news we've been in straight up mode for 2 years now. Those kind of factors make me nervous to buy right now. Any thoughts?
Super Member
Joined: Feb 2010
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From: Mississippi
2004 SL55
Ok so I'm looking at investing in a DRIP for a long term position in KO. I like the company and they've got great long term prospects. Current dividend yield is sitting at 2.9% and they have a history of growing the dividend at 11% which is good. Current Return on Equity is sitting at 41.9% which is above average and PE at 12.9 it is well below average. With a 5-year ROE of 36.7% and payout ratio of only 35% you can expect the book value to grow on average 23.8% year. That would mean that 10 years from now you could expect the book value to grow from 13.53/share up to 114.80/share. Since KO trades at a 5 year average of 5.5 price/book that would put the stock price at $632.60(excluding any stock splits). If we assume they remain at their average dividend yield of 2.8% I would collect an additional $82 in dividends over that time. Without reinvesting dividends that would come out to a compounded annual growth rate of 27.5%.
Looking at those kind of returns this is an easy choice to pick up for the long haul. That being said, despite the low PE Coke is trading at a 52 week high. With the exception of that brief pull back on the Libya/Japan news we've been in straight up mode for 2 years now. Those kind of factors make me nervous to buy right now. Any thoughts?
Looking at those kind of returns this is an easy choice to pick up for the long haul. That being said, despite the low PE Coke is trading at a 52 week high. With the exception of that brief pull back on the Libya/Japan news we've been in straight up mode for 2 years now. Those kind of factors make me nervous to buy right now. Any thoughts?
Senior Member
Joined: Dec 2008
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a g
I like KO and it is a well run company. However, I don't see a company with ~$155B market cap growing at that rate. I'd pay attention to the volume shipments, both domestically and internationally, as well as the COGS. I'm quite sure KO is good at hedging input costs and passing costs on to the end consumer, I just don't know how far out they are hedged. That said, I do think it's a good investment over the long-haul, I would just readjust my return expectations a little.
