Thanks to all who read and shared my recent post CVX and How I Got Started Dividend Investing. The response and feedback was tremendous. Because of the response, I have decided to write about another successful investment, buying and holding Coca-Cola (KO).
Anyone reading this blog has probably read quite a few articles already about KO, and may even own some shares themselves. But since a lot of my readers are relatively new to investing, I thought I would share my long-term and successful KO buy and hold strategy to help remind you why dividend growth investors invest the way we do.
As I do with all of my dividend reinvestment plan (DRIP) holdings, I have kept meticulous records of KO. I am sharing my records with you here so you can look at the progress of my investment over time.
Summary of DRIP Investment (keep reading below)
|Total Shares Purchased||
|Cost Per Share||
|Price as of Close 10/28/13||
|Value as of Close 10/28/13||
|Percentage Gain 10/28/13||
|Current Annual Dividend||
|Current Dividend Yield||
|Yield On Cash In||5.25%|
Over the course of 16 years, 85.64% does not sound like that great of a return. When I bought my first share, the price of the stock was $28 adjusted for the split. So the price is only up 41% since then. The reinvested dividends and dollar cost averaging make up the rest of my gain.
The stock was overvalued for a long period of time when I was purchasing the shares, and even peaked at $88.94 on July 15th 1998, which is $44.47 in today’s terms adjusted for the split. Yes, you read that correctly, KO traded higher on July 15th 1998 than it did today. It was a sign of the times back then I guess. Major fluctuations over time like this are why I frequently choose to dollar cost average into stocks. It can be very difficult to determine a good entry price so I buy at regular intervals for certain holdings.
In the Beginning
During my college Christmas break of 1996, I decided I wanted to buy some stock in Coca-Cola. Everyone knows the story, the most recognized brand in the world, a top holding of Warren Buffet, addictive product, great company with loyal customers and steady earnings growth. The business of Coca-cola is a no-brainer. I had just recently started to understand the fundamentals of investing, having taken some college finance courses now that I was into my junior year. Buffet was the most famous investor I knew other than Peter Lynch at the time. Those guys really knew what they were doing, and I was addicted to Sprite in my childhood, so I thought this was the stock for me.
The challenge back then as I mentioned in the CVX post, was that the online brokerages had not really developed, were not nearly as popular as they are today, or required a large minimum deposit. So I did what I needed to do to get a share of KO stock. I opened up the yellow pages, found some stock brokers, and called a bunch in hopes that one of them could help me. Indeed, a young broker was willing to help me without the requirement of opening an account.
So I wrote him a check, and he bought me one share of KO, put the share in my name and mailed me the physical certificate. The share cost me $56 and the broker’s fee was just $10. The share was issued on December 31st, 1996 and I still have the certificate to this day. Putting the share in my name gave my shareholder information to Coca-Cola, and they enrolled me in their direct stock purchase and DRIP managed by their stock transfer agent, a company called Harris Bank. Harris Bank’s stock transfer services were acquired in 2004 by Computershare who administers the program today.
Instead of using ACH transfers to make purchases as I do today, I would send checks to Harris, purchasing shares in $30, $50, or $100 amounts. Slowly I started building my holdings by fractions of shares. When I received a quarterly dividend, it was less than $1 for two years. Once I had acquired a few shares, I used the Harris Bank gift program to give my Dad one share for Christmas along with a can of Coke. My Dad had also received a share of CVX from my Uncle a year or two earlier, so he and I talked about investing like other things we did together like collecting baseball cards when I was a kid, golfing, or fishing. By very slowly adding funds and reinvesting dividends, it took me two years to reach a level of ten shares of KO worth just $620. The slow pace of progress did not bother me because I knew I was in for the long haul.
During the period of 2000-2003, I did not deposit any money into my KO DRIP account because I was overseas traveling with no income. I resumed my purchases in September of 2003 once I finally had a steady stream of income after the traveling. Between 2003 and 2010, I made fairly steady purchases in $50-$100 amounts and continued to reinvest all of my dividends. Many of those purchases were priced in the low forties (before the most recent split), which at the time I thought was a great price.
Fees and the Future of Buying and Holding Coca-Cola
The fees for DRIP programs vary for every company, and companies change their policies over time. As you can see from my spreadsheet, I have kept track of all fees, and they do change over time. Fees also differ if you use an automated ACH deposit, wire funds, or write a check. So you need to read the plan materials carefully before investing in DRIPs. The fees do affect my decision of whether or not to invest at times. KO for example has a $2 fee now for automated ongoing ACH purchases. This discourages buying in small amounts, under $100. So $100 is usually the minimum amount I used to purchase shares at a time now, or I may choose to purchase shares in another company with smaller fees. Some plans charge no fees at all and the company pays them. You can find fee details and no-fee plans for various companies on the Computershare, Wells Fargo Shareowner Services, AMStock, and Broadridge websites.
While the 85.86% total return over the past 16 years is not fantastic, I have positioned myself for excellent upside potential in the years approaching my retirement. Any dividend I now receive is a 5.25% yield on cash purchases I’ve made (excluding dividend reinvestment). Reinvested dividends add to the number of shares I own. Also KO has consistently paid and increased their dividends for fifty years and is a member of the elite Dividend Aristocrats.
KO has increased its dividend on average 9.8% annually for the last ten years. If this pace keeps up, in seventeen years when I retire at age 55, the estimated annual dividend payment would be around $6.00 per share. If I do not buy any more shares or reinvest any dividends between now and then, and I simply hold onto my 221 shares, that dividend will pay me $1326 in annual dividends. Today my shares pay me $247 annually. If instead I do reinvest the dividends for the next seventeen years, and buy more shares; well that calculation has a lot of variables and is more difficult to predict. But rest assured it is significantly higher than $1326. I have run this model in the past, but I may save that for another post.
So if you are a long-term shareholder of KO, or are thinking about becoming one today, keep a few things in mind:
- The share price will fluctuate, sometimes surprisingly so
- If you are buying in big lots, remember that entry price does matter
- Dollar cost averaging is a safer bet than big lot purchases over a long period of time
- Reinvest your dividends
- Diversify into other investments
- Be patient
- Drink you favorite Coke beverage to support the company (I have since switched to Diet Coke over Sprite)
Have you held any shares longer than 16 years?
Disclosure: Long KO, CVX