Seeking Alpha
Profile| Send Message| ()  

Atlanta-headquartered Coca-Cola (KO), a Warren Buffett favorite, is the world's largest, and most famous soft-drink company. Although Coca-Cola is known as an American symbol, the company has significant number of operation centers all around the world. It is the firm's policy to enhance its global position through local alliances. Coca-Cola has more than 500 brands, globally. The company supplies variety of beverages under different brands including, but not limited to, Sprite, Schweppes, PowerAde, Fanta, Cappy, and Burn. Coca-Cola is even involved in bottled water services. Below, is the 10-year income statement of Coca-Cola:

Income Statement (in $ millions)

SALES

TOTAL NET INCOME

EPS

DIVIDENDS

2001

$17.545,00

$3.979,00

$1,60

$0,72

2002

$19.564,00

$3.976,00

$1,60

$0,80

2003

$20.857,00

$4.347,00

$1,77

$0,88

2004

$21.742,00

$4.847,00

$2,00

$1,00

2005

$23.104,00

$4.872,00

$2,04

$1,12

2006

$24.088,00

$5.080,00

$2,16

$1,24

2007

$28.857,00

$5.981,00

$2,57

$1,36

2008

$31.944,00

$5.807,00

$2,49

$1,52

2009

$30.990,00

$6.824,00

$2,93

$1,64

2010

$35.119,00

$11.809,00

$5,06

$1,76

As we see in the chart, both total net income and sales steadily increased in the last decade. The almost exponential increase in sales revenue shows the strong demand for Coca-Cola products all around the world. The only scale down in revenues occurred in 2009. However, that reduction in sales could not stop the upward trend in profits. In the last 10 years, the total net income never reduced below the previous year profit. The company's earnings growth rate has been around 9.70% in the past five years. Analysts estimate an earnings growth rate of 9% for the next five years, which is very realistic given the past performance.

Dividend Policy:

The company's annual dividend yield is %2.75. As shown in the chart, both EPS and dividends are increasing since 2001. 2010 was the best year for the company, with the total net income of $11.8 billion. Even if the company makes no profit, the existing current account surplus is enough to keep the current dividends for at least five years.

BALANCE SHEET

CURRENT ASSETS

CURRENT LIABILITIES

LONG TERM DEBT

2001

$22.417,00

$11.051,00

$1.219,00

2002

$24.406,00

$12.606,00

$2.701,00

2003

$27.342,00

$13.252,00

$2.517,00

2004

$31.441,00

$15.506,00

$1.157,00

2005

$29.427,00

$13.072,00

$1.154,00

2006

$29.963,00

$13.043,00

$1.314,00

2007

$43.269,00

$21.525,00

$3.277,00

2008

$40.519,00

$20.047,00

$2.781,00

2009

$48.671,00

$23.872,00

$5.059,00

2010

$72.921,00

$41.918,00

$14.041,00


(Click to enlarge)

Coca-Cola is a very successful company which was able to almost quadruple its current assets by 4-fold in the last 20 years. Current liabilities also increased in a similar fashion. However, the current account surplus increased from $11 billion in 2001 to $33 billion in 2010. In 2010, the long-term debt almost doubled. Nevertheless, it is still a fraction of the current assets, so there is no need to worry.

Historical Fundamentals:

AVG P/E

PROFIT MARGIN %

2001

30,4

22,70%

2002

31,1

20,30%

2003

25

20,80%

2004

23,3

22,30%

2005

21

21,10%

2006

20,3

21,10%

2007

21

20,70%

2008

21,6

18,20%

2009

16,7

22,00%

2010

11,2

33,60%

The company experienced the highest average P/E value of 31.10 in 2002. The best net profit margin of 33.60% is realized in 2010. In 2008, there was a decrease in net profit margin to 18.20%, while this number was 20.70% in 2007. The sales amounted to $31.94 billion in 2008 and $28.86 billion in 2007 whereas the net income levels were $5.8 billion and $5.98 billion in the same years. Thus, increase in revenues caused a slight reduction in net profit margin in 2008.

Direct Competitor Comparison (from Yahoo Finance):

KO

(DPS)

(OTCPK:NSRGY)

(PEP)

Market Cap:

156.08B

9.25B

199.82B

111.53B

Employees (x1000):

139,6

19

281

294

Qtrly Rev Growth (yoy):

39.80%

6.70%

N/A

27.40%

Revenue (ttm):

38.11B

5.72B

118.32B

60.41B

Gross Margin (ttm):

63.01%

59.89%

57.20%

54.63%

EBITDA (ttm):

10.86B

1.25B

18.90B

12.38B

Operating Margin (ttm):

24.20%

18.18%

13.42%

16.41%

Net Income (ttm):

12.10B

553.00M

9.93B

6.03B

EPS (ttm):

5,19

2,34

11,45

3,74

P/E (ttm):

13.14

17,82

5,36

18.88

PEG (5 yr expected):

1,85

1,98

2,98

1,72

P/S (ttm):

4,1

1,6

1,7

1,86

Coca=Cola has the highest gross margin of 63.01%. With an operating margin of 24.20%, the company has the highest operating margin as well. Nestle Company's PEG ratio is 2.98 whereas PEP has a PEG ratio of 1.72. Coca-Cola is the most profitable company among its competitors with a net income of $12.10 billion. As Coca-Cola focuses on new distribution channels for traditional products, we can assure that it will keep its growth in the future.

Summary

Coca-Cola is one of the safest dividend stocks in the market. After all, it has the strong back-up of Warren Buffett, who has been holding on to the stock for a really long time. While, the stocks will not make you as rich as Warren Buffett, the company is an immensely profitable business. Currently, the stock is trading with a trailing P/E ratio of 13.2, which is well below the historical P/E ratio of 20. Under the leadership of Muhtar Kent, Coke will continue rewarding the long-term shareholders. That is why, it should be considered among the dividend stock picks for the next 5 years.

Source: Coca-Cola: A Dividend Pick for the Next 5 Years