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2021-04-23

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Coca-Cola Stock: Is The Dividend Safe?

Summary On its face, Coca-Cola has a nice 3+ percent dividend. Digging into the financials, KO trad

Coca-Cola Stock: Is The Dividend Safe?

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{"i18n":{"language":"zh_CN"},"data":{"magic":2,"id":376617312,"tweetId":"376617312","gmtCreate":1619109019136,"gmtModify":1634288470160,"author":{"id":3582012732625728,"idStr":"3582012732625728","authorId":3582012732625728,"authorIdStr":"3582012732625728","name":"雷思理","avatar":"https://static.tigerbbs.com/6700e88b9547d9601772e685dc19e9aa","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":1,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>Great</p></body></html>","htmlText":"<html><head></head><body><p>Great</p></body></html>","text":"Great","highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/376617312","repostId":1109671088,"repostType":4,"repost":{"id":"1109671088","kind":"news","pubTimestamp":1619105139,"share":"https://www.laohu8.com/m/news/1109671088?lang=&edition=full","pubTime":"2021-04-22 23:25","market":"us","language":"en","title":"Coca-Cola Stock: Is The Dividend Safe?","url":"https://stock-news.laohu8.com/highlight/detail?id=1109671088","media":"seekingalpha","summary":"Summary\n\nOn its face, Coca-Cola has a nice 3+ percent dividend.\nDigging into the financials, KO trad","content":"<p><b>Summary</b></p>\n<ul>\n <li>On its face, Coca-Cola has a nice 3+ percent dividend.</li>\n <li>Digging into the financials, KO trades for a very high P/E given its fundamentals and the dividend payout ratio has steadily risen over time.</li>\n <li>While KO's dividend is in no immediate danger, I do question its sustainability in the long run.</li>\n <li>I don't think the valuation for KO makes a whole lot of sense, and I would look elsewhere for yield.</li>\n</ul>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/530d4a81c86e3243261b6ac5fae7ee6b\" tg-width=\"1536\" tg-height=\"1152\"><span>Photo by Eric Broder Van Dyke/iStock Editorial via Getty Images</span></p>\n<blockquote>\n Show me the money!\n</blockquote>\n<blockquote>\n -Rod Tidwell,\n <i>Jerry Maguire (1996).</i>\n</blockquote>\n<p>The Coca-Cola Company (KO) is a long-time dividend aristocrat and popular income stock with<i>Seeking Alpha</i>readers, but under the hood, there are some issues that investors should be aware of. Like the famous exchange in<i>Jerry Macguire</i>, companies need to show dividend investors the money, and in KO's case, I'm not seeing enough of it in their financial statements. Even if you're not a KO shareholder, the exercise of learning to analyze a company's income statement, cash flow statement, and balance sheet for dividend sustainability is something that every investor can benefit from.</p>\n<p>Somewhere along the way over the past 10 years, KO's&nbsp;dividend payout ratio&nbsp;went from a normal ~50 percent payout range that you typically see for consumer staple companies to over 100 percent in 2020. On its face, KO has a nice 3+ percent dividend. But I'm not completely convinced that the dividend can keep growing in the future, and the way things are going, there may even be pressure to cut it 3-5 years down the road.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/4b20487ca269f1ab12fc361dd176690f\" tg-width=\"635\" tg-height=\"435\"><span>Data by YCharts</span></p>\n<p>Based on&nbsp;earnings estimates for 2021, the dividend is likely to absorb 75-80 percent of KO's earnings, which is an improvement from 2020. It's not entirely clear where the payout ratio becomes unsustainable, but the ratio is not in the range that I like to see. Analyst earnings estimates for next year and the year after are predicated on KO being able to pass commodity price increases through to consumers, which is a downside risk to KO's earnings if consumers respond by buying less. For cyclical companies in downturns, it's fairly common to borrow to maintain the dividend. For a consumer product company with fairly stable revenue like Coca- Cola, it's not common to see a payout ratio be over 100 percent, and it likely relates to the company's desire to remain a dividend aristocrat, which attracts ETF and mutual fund money into the stock. KO's earnings took a clear hit from coronavirus, but are expected to rebound to $2.17 per share for 2021 and $2.35 for 2022. KO's earnings for the year will cover the dividend of $1.68 per share, but Coca-Cola hasn't done much at all to grow its net income in the last decade. In fact, net income is actually down a bit over the last 10 years, but the share count has fallen as well, keeping things steady on the EPS front. At KO's current price, the stock trades for over 25x forward earnings, which would be fine if the company had stronger growth prospects, but in this case, I think the valuation makes this a surprisingly risky stock.</p>\n<p>Dividend purists like to compare dividend payouts to free cash flow, which is a tad higher than earnings, but Coca-Cola's&nbsp;free cash flow&nbsp;is being helped by spending less and less on capital expenditures over time. An optimist would say that they're just focusing on their core businesses, while a pessimist might say that they're underinvesting in their manufacturing and brand. For this reason, I would advise investors to at least assess KO's dividend safety on its earnings, not free cash flow.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/62ca4a357963f87fa0c6ca78701bae22\" tg-width=\"635\" tg-height=\"435\"><span>Data by YCharts</span></p>\n<p><b>Will KO Cut Its Dividend?</b></p>\n<p>Short-term, KO's dividend is in no immediate danger. Over the long term, I find the valuation and dividend policy in Coca-Cola a bit perplexing. Upon thinking a bit more, it makes sense to me. KO is held by a lot of mutual funds and ETFs due to being a large company that belongs to several popular groups of stocks. Academic research shows that investors prefer the shares of companies that are&nbsp;large, popular, and familiar, while companies with the opposite characteristics tend to have better long-run returns, all else being equal. Coca-Cola is a Dow Jones Industrial Average component, meaning that investors will buy the stock because it's well known, and ETFs that track the Dow will automatically have KO as a component. The Dow Jones Industrial SPDR ETF (DIA) is a prime example, with over $29 billion in AUM. This creates price-insensitive buyers for KO stock. Additionally, the company is a dividend aristocrat, which means that every ETF that tracks the dividend aristocrat ETF automatically has to buy in as well. To these points, it is mission-critical that KO can maintain the dividend and raise it at least 1 cent every year to remain a part of the dividend aristocrat list.</p>\n<p>Here is Coca-Cola's net income over time.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/9906fb0f526c5224b86f02868539f4ba\" tg-width=\"640\" tg-height=\"501\"><span>Source: Macrotrends</span></p>\n<p>To me, KO should trade as a value stock, but the company is valued as a growth stock. This is the exact opposite of what I look for in a company. I view this as offering asymmetric downside to shareholders. Keep in mind that KO's net income is ostensibly benefitting from the Trump tax cuts as well, with the corporate tax rate dropping from 35 percent to 21 percent. This boosted S&amp;P 500 earnings ~20 percent across the board, although it isn't clear if the tax cuts helped KO as much from looking at their financial statements (KO seemed to have had a very low tax rate before).</p>\n<p><b>Conclusion: Is Coca-Cola a good dividend stock?</b></p>\n<p>Investing is a game that is played for money, and investors can learn a lot from studying other games. Value investing is a lot like sports betting, where you have to compare the valuation of a company to how good the business is likely to do–just as sports bettors have to compare teams to their point spreads and money-line odds. Portfolio strategy is like poker, where an understanding of basic math and psychology helps you win. Accounting and reading financial statements are like chess, in that if you don't understand the themes of what is going on, you're likely to fall into traps and lose quickly to better-informed parties. In the case of KO, the valuation is high, the psychology of popularity means that the company is likely to be valued higher than it otherwise would be (with downside to this if the company loses popularity), and the financial statements show that dividend investors may not be aware of the stagnation in company performance. With these in mind, I'd look elsewhere rather than KO for dividends.</p>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Coca-Cola Stock: Is The Dividend Safe?</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCoca-Cola Stock: Is The Dividend Safe?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-04-22 23:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4420550-coca-cola-stock-dividend-safe><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nOn its face, Coca-Cola has a nice 3+ percent dividend.\nDigging into the financials, KO trades for a very high P/E given its fundamentals and the dividend payout ratio has steadily risen over ...</p>\n\n<a href=\"https://seekingalpha.com/article/4420550-coca-cola-stock-dividend-safe\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"KO":"可口可乐"},"source_url":"https://seekingalpha.com/article/4420550-coca-cola-stock-dividend-safe","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1109671088","content_text":"Summary\n\nOn its face, Coca-Cola has a nice 3+ percent dividend.\nDigging into the financials, KO trades for a very high P/E given its fundamentals and the dividend payout ratio has steadily risen over time.\nWhile KO's dividend is in no immediate danger, I do question its sustainability in the long run.\nI don't think the valuation for KO makes a whole lot of sense, and I would look elsewhere for yield.\n\nPhoto by Eric Broder Van Dyke/iStock Editorial via Getty Images\n\n Show me the money!\n\n\n -Rod Tidwell,\n Jerry Maguire (1996).\n\nThe Coca-Cola Company (KO) is a long-time dividend aristocrat and popular income stock withSeeking Alphareaders, but under the hood, there are some issues that investors should be aware of. Like the famous exchange inJerry Macguire, companies need to show dividend investors the money, and in KO's case, I'm not seeing enough of it in their financial statements. Even if you're not a KO shareholder, the exercise of learning to analyze a company's income statement, cash flow statement, and balance sheet for dividend sustainability is something that every investor can benefit from.\nSomewhere along the way over the past 10 years, KO's dividend payout ratio went from a normal ~50 percent payout range that you typically see for consumer staple companies to over 100 percent in 2020. On its face, KO has a nice 3+ percent dividend. But I'm not completely convinced that the dividend can keep growing in the future, and the way things are going, there may even be pressure to cut it 3-5 years down the road.\nData by YCharts\nBased on earnings estimates for 2021, the dividend is likely to absorb 75-80 percent of KO's earnings, which is an improvement from 2020. It's not entirely clear where the payout ratio becomes unsustainable, but the ratio is not in the range that I like to see. Analyst earnings estimates for next year and the year after are predicated on KO being able to pass commodity price increases through to consumers, which is a downside risk to KO's earnings if consumers respond by buying less. For cyclical companies in downturns, it's fairly common to borrow to maintain the dividend. For a consumer product company with fairly stable revenue like Coca- Cola, it's not common to see a payout ratio be over 100 percent, and it likely relates to the company's desire to remain a dividend aristocrat, which attracts ETF and mutual fund money into the stock. KO's earnings took a clear hit from coronavirus, but are expected to rebound to $2.17 per share for 2021 and $2.35 for 2022. KO's earnings for the year will cover the dividend of $1.68 per share, but Coca-Cola hasn't done much at all to grow its net income in the last decade. In fact, net income is actually down a bit over the last 10 years, but the share count has fallen as well, keeping things steady on the EPS front. At KO's current price, the stock trades for over 25x forward earnings, which would be fine if the company had stronger growth prospects, but in this case, I think the valuation makes this a surprisingly risky stock.\nDividend purists like to compare dividend payouts to free cash flow, which is a tad higher than earnings, but Coca-Cola's free cash flow is being helped by spending less and less on capital expenditures over time. An optimist would say that they're just focusing on their core businesses, while a pessimist might say that they're underinvesting in their manufacturing and brand. For this reason, I would advise investors to at least assess KO's dividend safety on its earnings, not free cash flow.\nData by YCharts\nWill KO Cut Its Dividend?\nShort-term, KO's dividend is in no immediate danger. Over the long term, I find the valuation and dividend policy in Coca-Cola a bit perplexing. Upon thinking a bit more, it makes sense to me. KO is held by a lot of mutual funds and ETFs due to being a large company that belongs to several popular groups of stocks. Academic research shows that investors prefer the shares of companies that are large, popular, and familiar, while companies with the opposite characteristics tend to have better long-run returns, all else being equal. Coca-Cola is a Dow Jones Industrial Average component, meaning that investors will buy the stock because it's well known, and ETFs that track the Dow will automatically have KO as a component. The Dow Jones Industrial SPDR ETF (DIA) is a prime example, with over $29 billion in AUM. This creates price-insensitive buyers for KO stock. Additionally, the company is a dividend aristocrat, which means that every ETF that tracks the dividend aristocrat ETF automatically has to buy in as well. To these points, it is mission-critical that KO can maintain the dividend and raise it at least 1 cent every year to remain a part of the dividend aristocrat list.\nHere is Coca-Cola's net income over time.\nSource: Macrotrends\nTo me, KO should trade as a value stock, but the company is valued as a growth stock. This is the exact opposite of what I look for in a company. I view this as offering asymmetric downside to shareholders. Keep in mind that KO's net income is ostensibly benefitting from the Trump tax cuts as well, with the corporate tax rate dropping from 35 percent to 21 percent. This boosted S&P 500 earnings ~20 percent across the board, although it isn't clear if the tax cuts helped KO as much from looking at their financial statements (KO seemed to have had a very low tax rate before).\nConclusion: Is Coca-Cola a good dividend stock?\nInvesting is a game that is played for money, and investors can learn a lot from studying other games. Value investing is a lot like sports betting, where you have to compare the valuation of a company to how good the business is likely to do–just as sports bettors have to compare teams to their point spreads and money-line odds. Portfolio strategy is like poker, where an understanding of basic math and psychology helps you win. Accounting and reading financial statements are like chess, in that if you don't understand the themes of what is going on, you're likely to fall into traps and lose quickly to better-informed parties. In the case of KO, the valuation is high, the psychology of popularity means that the company is likely to be valued higher than it otherwise would be (with downside to this if the company loses popularity), and the financial statements show that dividend investors may not be aware of the stagnation in company performance. With these in mind, I'd look elsewhere rather than KO for dividends.","news_type":1},"isVote":1,"tweetType":1,"viewCount":186,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":5,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}