Warren Buffet began accumulating shares of Coca-Cola in 1988. The business was similar to what it is today, albeit on a less global scale. Coca-Cola is one of only 9 Dividend Aristocrats from 1989 to have continued to increase dividends every year to this day.
Fantastic 25 Year Return
Coca-Cola’s share price has increased close to 15x since the beginning of 1989 adjusted for share splits. The current yield on cost for 1989 purchasers is around 45%. Every year, Coca-Cola is paying a dividend of almost half of the initial purchase price in 1989. Coca-Cola’s total return from 1989 to May 7th, 2014 is almost 25x the initial investment, compared to less than 12x for an equal investment in the S&P 500 fund VFINX.
Coca-Cola was a Dividend Aristocrat in 1989
Coca-Cola was not a classic growth stock in 1989. It had been paying increasing dividends for 27 consecutive years. Coca-Cola was already a Dividend Aristocrat. There were fears that competitors (specifically, Pepsi) would erode Coca-Cola’s market share, cause slow growth, and lower profit margins. Coca-Cola did not trade at a substantial discount despite these fears. Its P/E ratio was about 15 which is Cheap, but not absurdly so.
1989 Coca-Cola’s Key Stats
- Consecutive Years with Dividend Increase: 27
- P/E Ratio: 15.26
- Payout Ratio: 42.11%
- Dividend Yield: 2.76%
- 10 Year Dividend/Share Growth: 7.05%
- 10 Year Revenue/Share Growth: 9.38%
- 10 Year Volatility: 30.13%
The key statistics of Coca-Cola tell an interesting story. It was a business with a long-track record of success in a slow changing industry. The business had impressive growth, but not anything that would leap off a financial statement and scream invest.
Coca-Cola was cheap, but not a business that would be considered a classic value investment. In 1989, Coca-Cola looked like a stable dividend growth stock with a long growth runway ahead of it. That is exactly what it was (and still is). Toay, Coca-Cola’s growth runway will come from deeper penetration into emerging markets and greater expansion into still beverages. Coca-Cola has captured 33% of the growth in the juice market since 2007. Further, they have 11 still (non-carbonated) brands with over $1 billion in sales per year.
Coca-Cola in 1989 Compared to Today’s Top 10 Dividend Stocks
1989 Coca-Cola would rank as a ‘buy’ based on the 5 buy rules from the 8 Rules of Dividend Investing. 1989 Coca-Cola would rank 9th out of a possible 106 stocks with 25+ years of dividend increases today. Interestingly, the Coca-Cola of today ranks higher than the Coca-Cola of 25 years ago due to the significantly lower volatility of current day Coca-Cola. There are 3 stocks on the top 10 list today that have higher 10-year growth rate and dividend yield than 1989 Coca-Cola.