With my strategy of buying simple businesses with great long-term operating histories, I've recently bought some shares of Coca-Cola. This company is the maker of hundreds of beverage products around the globe - simple enough for any child to understand. I like dividends and this company has delivered dividends in spades! It has managed to pay uninterrupted dividends since 1893 - basically longer than anyone alive today has lived! It has also managed to string together 47 consecutive years of dividend increases - a period longer than I have been alive.
But a reasonable question might be - why buy it now? I have followed Warren Buffett for almost two decades and he has owned Coke shares during the entire time - so why buy them now and not earlier? The simple answer is that they are more reasonably priced (read:cheaper) than they have been for a long time. Back in 1998, the shares sold for over $80 each. At that time, Coke was the same great company it's always been - but the shares were too expensive (P/E ratio of over 50). An investment in Coke shares a dozen years ago would have yielded a negative return! Twelve years ago, it would have been a better strategy to bury your money in your back yard rather than buying shares in Coca-Cola.
You might be thinking that this sounds like a terrible investment - and it was AT THAT TIME - but only because the shares were too expensive. This fact highlights my approach of waiting for pessimism and then looking for great companies to buy. During these 12 years while Coke's share price declined, Coke's earnings grew by over 100%. The dividend has risen by even more. And the company has invested massively in overseas markets - growing volume and becoming an all-round larger (and more valuable company) - regardless of what's happened to the stock price.
Your next question might be, "Why wouldn't I have purchased it a year ago when stock markets were in freefall and the stock price of Coke was cheaper." The quick answer is that I thought stock markets would fall more than they have up to this point. But pessimism continues to grip the market when it comes to the US dollar. Let's take a quick peak ay the affect this has on my investment.
During the stock market carnage a little over a year ago, Coke shares reached a low point of $37.40 US, but I recently bought them for an adjusted price of around $52 US. This is a huge run-up in price...or is it? As pessimism attacked the US dollar, it fell. At the low-point last year, Coke shares sold for around $48 Canadian. My recent purchase price for Coca Cola was around $54 Canadian - not too far from the low point. The point is that I feel there are still reasonable deals to be had in the stock market for those investors looking for quality, dividend-paying companies.
The final point I'd like to make is that Coca Cola is a truly global company with over 75% of it's revenue earned outside the US. Over time, international sales are growing much more quickly than North American sales. Right now, per capita consumption in the US is 399 beverages per year - while in China it's only 30 and only 9 in India. My bet is that over the long term, India and China per capita consumption will move towards US levels - which will mean large international growth. This means that even though you are buying shares priced in US dollars, the company does the lion's share of its growing business internationally - which means the company is not dependent on what unfolds in the US.
