Patience Pays – 16 Years of Buying and Holding Coca-Cola

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 my second oldest holding, Coca-Cola (Symbol: 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.

It's been a bumpy road (click to view larger version)

It’s been a bumpy road (click to view larger version)

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)

Date Started

12/31/1996

Money used for Purchasing

$4,716.12

Purchase fees

$67.68

Dividends Received

$1288.41

Dividend Fees

$40.33

Total Shares Purchased

221.035

Cost Basis per share (after fees)

$21.34

Cost Basis Amount

$4716.12

Price as of Close 10/28/13

$39.61

Value as of Close 10/28/13

$8755.20

Gain

$4039.08

Percentage Gain 10/28/13

85.64%

Current Annual Dividend

$1.12/share

Current Dividend Yield

2.90%

My Yield On Cost (YOC)

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

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 my cost. Reinvested dividends bring down my cost basis significantly every quarter and 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.

Conclusion

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

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21 Responses to Patience Pays – 16 Years of Buying and Holding Coca-Cola

  1. writing2reality October 29, 2013 at 1:45 pm #

    Haven’t held any shares for 16 years as that would put me at twelve years old if I still held them today. I did however have some mutual fund shares for about 10 years that were purchased with some allowance money before selling them due to the outrageous costs associated with those shares. At this point I am in a buy and hold mentality (for the most part) and would envision holding some of my current stocks till the day I die.

    • retirebeforedad October 29, 2013 at 1:48 pm #

      WYOR,
      Thanks for reading. Yeah, most of my holdings I am hoping to hold as long as I live. When I stretch the dividend growth to when I am 65 or 75, the numbers are really big. That’s if nothing unseats Coke as a global leader in beverages. Hard to imagine that today, but you never know.

      -RBD

  2. Evan October 29, 2013 at 4:03 pm #

    Love this post! I started my dividend portfolio just a few short years using sharebuilder so I was buying similar fractional shares (I have now moved onto Fidelity and buying $750 worth monthly). I wish I started earlier like you did although 16 years ago I would have been a junior in HS and $200 bucks might as well have been $2,000 lol.

    Like you, I want to be able one day maybe at 45 or 50 year old turn on the income stream.

    • retirebeforedad October 29, 2013 at 8:04 pm #

      Thanks Evan. I never tried sharebuilder, but was always curious. I use TD Ameritrade for normal trades but their dividend reinvestment options aren’t good. Yeah we all wish we would have started earlier or put more money in. The key is to not be saying that 10 years from now!

      -RBD

  3. FFdividend October 29, 2013 at 10:52 pm #

    great post. My longest company i held was Siri. (Yea I know :/) Big mistake on that one. I still have it today. I invest 1k and it is worth about $200 now. I had it about 5 years. :/

    • retirebeforedad October 30, 2013 at 7:14 am #

      I’m a subscriber but not an investor in Siri. At least it’s not in the 1’s anymore. Good product. Good to learn from mistakes with small amounts of money.

  4. Andrew@livingrichcheaply October 30, 2013 at 10:25 am #

    Funny thing because when I was a senior in college back in 2002 I wrote a paper about investing in Coca Cola in my business class. I probably should have followed my own advice. The oldest stocks I have were bought right after I got my first job…but very few shares. Nokia has been a bust, I should have sold earlier. But Oracle has done well for me. I don’t really invest much in individual stocks and usually invest in my 403b and IRA.

    • retirebeforedad October 30, 2013 at 10:39 am #

      LRC,

      Thanks for stopping by. My first paper on a stock was Gillette. Didn’t buy any of course and it was sold to PG. Just checked out your site. Living in NYC is rough on costs. I’m in DC area getting more expensive every day.

      -RBD

  5. Green Money Stream November 6, 2013 at 6:36 pm #

    Good post. I wish I would have started dividend investing 16 years ago! But alas, I’ve only been serious about it for a few years now. Better late than never!

    • retirebeforedad November 6, 2013 at 7:37 pm #

      Yeah I always feel that way. I read Dividend Growth Investors post about JNJ in 1987. Wish I had bought then, but I was only in 7th grade. Thanks!
      -RBD

  6. Integrator@financiallyintegrated.com November 6, 2013 at 10:05 pm #

    Inspiring post. I think the longest I have held onto any share is probably 8-9 years. It was one of the big Australian banks that i hold, and it’s tripled in price since that time. Some nice dividends from the holding also!

  7. Steven of Chicago November 9, 2013 at 9:10 am #

    Inspiring post. I have four stocks I have held for 41 years. I refer to them as the four pillars of my investment portfolio and keepers for life. MMM, Cvx, JNJ, and Pep generate enough dividends for me and I retired quite comfortably at age 57. I could have retired earlier, but would not have received the great retirement benefits from my company. I never, ever leave any money on the table.

    All the best to you and your readers on your financial journey. And “many happy returns”.

    • retirebeforedad November 9, 2013 at 7:47 pm #

      Steven,

      Thank you for taking the time to read my post and commenting. I must say, your story is quire inspiring too. 41 years is a very long time to hold stocks. It makes me want to run those stocks through a spreadsheet as a hypothetical scenario and write a post about it. Also that you retired at age 57 is impressive. I can see something like waiting for benefits as a risk to extend my working years. But I am not going let anything get in my way!

      -RBD

  8. Eileen Landau November 11, 2013 at 8:48 pm #

    Yes, I have a few stocks that I purchased in the ’90’s. MSFT, IBM and PEP. Have added to them also. Then after the tech bubble went to stocks that paid dividends: JNJ, PG, MO and KRFT. When I was younger held funds at Fido, but the costs were crazy. So now, I’m looking for companies that Buffet would want…Heinz is an example.

    • retirebeforedad November 11, 2013 at 9:28 pm #

      Eileen,

      Thanks for commenting. Sounds like a nice portfolio you have. I held Heinz prior to the buyout. Part of me was happy to get a pop in the stock, but that meant I would no longer own Heinz, a great dividend payer. Still looking to fill that void.

      -RBD

      • Eileen Landau November 12, 2013 at 8:39 am #

        How ’bout PEP? Think it is better than KO.

        • retirebeforedad November 12, 2013 at 8:43 am #

          I have never really taken a close look at PEP, mostly because I have always owned KO. That said, I very much like their salty snack business. At this point my portfolio is not diverse enough to add the other major beverage company. I am considering something large and diverse like GIS. But I haven’t made the buy yet.

          Thanks!

          -RBD

  9. Mark @ myownadvisor (@myownadvisor) November 12, 2013 at 9:02 pm #

    It certainly pays to be an investor. I hold a few hundred shares of KO and never intend on selling them. They continue to DRIP for me each quarter.

  10. grey hair February 18, 2014 at 9:48 pm #

    I had a very few shares of AT&T in the 1980’s, and when they announced the divestiture (about 1984), the minimum to get all the baby bells was to own 10 shares of AT&T. So I bought a few more, and got all the baby bells.
    I was young and di not pay attention, and felt the small amounts were not meaning much, so I sold a few, kept a few. Then in the late 1990’s I woke up to the wonder of dividend investing, and started purchasing and DRIPping in earnest. Added a little to AT&T, which later was bought by one of the former baby bells.
    So now I get $150 per quarter from the new AT&T. Which I take in cash, no longer DRIP, because I am feel they are overpriced.

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  1. The Weekly Lineup: Twitter IPO and Markets Overheated Edition | The Dividend Ninja - November 9, 2013

    […] Back in October, Retire before Dad discusses his second dividend investment in KO. Be sure to check out this great post, Patience Pays – 16 Years of Buying and Holding Coca-Cola. […]

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