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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Coca Cola

March 6th 2009 Coca Cola
NYSE Symbol: KO
Industry: Soda
Stock price as of 3/6: $39.10

The dividend cuts keep coming. A surprise last week came from JP Morgan cutting their dividend by 80%, not because they had to, but because they wanted to preserve more cash. Then a week ago Friday, GE surprised the markets will a dividend cut. These moves will put pressure on other financials to cut their dividends. Are you listening, Wells Fargo? (Wells Fargo cut their dividend on Friday) Luckily there are a few blue chip defensive companies maintaining or raising their dividends. In the last several months I have featured six companies that have actually raised their dividends in the last year. The list includes 3M, McDonalds, Travelers, Kimberly Clark, Heinz, and Caterpillar. This weeks featured stock just raised their dividend for the 47th straight year and goes ex-dividend this week. The featured stock is Coca Cola. Coca-Cola's stock dropped to a new three year low this past week, under $40 a share. The weakness in the stock has lifted the dividend yield up to 4%. Over the past five years, the $40 mark has been a good buying opportunity. Director, Barry Diller is hoping that's still the case because he bought 500,000 shares at just under $40 a share. Let's hope he's right.
Coca Cola reported earnings not long ago, displaying strong volume across all international geographies. Coke earned $995 million down 18% year over year, but beat estimates by 3 cents. Revenues fell 2.8% to $7.13 billion. Management made the statement implying that while the company is not crisis proof, they believe the global business model is relatively resilient. Coke is backing up their words by announcing an additional $2 billion investment in China over the next three years on top of the billions of dollars it has already committed in buying out a major Chinese juice producer. Going forward, the recent strength in the U.S. dollar will crimp earnings. But the company is still expects to generate modest or flat earnings growth with net income over $7 billion. Not bad.
Coke's valuation looks good. The stock trades for 12.7 times earnings, 2.8 times sales, and 4 times book value. Coke has a very low volatility beta of 0.6, and as mentioned, sports a dividend yield of 4% and goes ex on March 11th.