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Friday, 09/12/2003

Have a DRIP and a Smile
By Nich Sheldon
KO - Coca-Cola Co.

Company Description

The Coca-Cola Company is the world's largest beverage company and is the leading producer and marketer of soft drinks. Along with Coca-Cola, recognized as the world's best-known brand, The Coca- Cola Company markets four of the world's top five soft drink brands, including diet Coke, Fanta and Sprite. Through the world's largest distribution system, consumers in nearly 200 countries enjoy The Coca-Cola Company's products at a rate of more than 1 billion servings each day.

[Source: Company Press Release]

Reasons to Invest:

The market has been somewhat of a replica of a seesaw in these past weeks. One week it's up, the next week it's down, but any trader whether experienced or not should know this is the norm. On the other hand, one thing is certain, the bear market of 2000-2002 is dead. With that said one might assume that if we are not in bear market we are in a bull market. The keyword in the previous statement is "assume." Traders tend to learn a technique for picking stocks that they choose to invest in, whether they are investing in options or DRIPs. We build up our portfolios by practicing new methods and then trying to use a little technical analysis to see what worked and what didn't work. Keeping all of this in mind, we think that we have found a Drip of the Week that fits our criteria just about to the T.

This week's Drip of the Week is Coca-Cola (NYSE:KO). Coca-Cola has been listed on the NYSE since the early seventies. The stock took off in the mid to late nineties almost breaching the 90 level in the middle of 1998. Enter the bears! Since 1998 shares of KO have been headed south. The bear market of 2000-02 saw shares of KO fall from the 64 level all the way down to 40. If you were a DRIP investor in shares of KO during this time period, we can literally feel your pain. If we didn't think it was necessary to talk about KO's past then we wouldn't, but we had to set you up for why we think now is the time for investing in Coca-Cola.

Besides the breach of 40 in the first quarter of this year, KO shares have been using the 43.00 as support. If a bounce off of this level happens we could see Coca-Cola getting vertical. One of the most attractive things about this stock is its current price to purchase. Friday's close has KO resting at 43.99. We feel that if 43.00 can continue to hold as support KO could see 50 by the end of 2004. Keep in mind that 50 is short term resistance for the stock and a minor sell-off will more than likely occur once this level is reached. Let's fathom the idea that fifty is reached by December of 2004 and after the sell-off new bulls enter the market and ride KO higher. A break over fifty, which did occur in the begging of 2002, could provide the strength needed to carry the stock towards the fifty-eight dollar level (which also occurred mid-2002). With this said, our thinking is that KO could move from its current price of 43.99 to the 58.00 level by 2005, providing nearly a 50% return to those of you who decide to invest in KO today.

A positive piece was written on Coca-Cola last Thursday (September 4th, 2003) stating that The Ritz-Carlton has just renewed its existing beverage contract with Coca-Cola for another six years. There are 54 Ritz-Carlton's across the world and this continuation of their existing contract is a positive sign for the soft drink giant.

Other than that, there really has not been much positive news on Coca-Cola over the past few months, but in a market as uncertain as the present, good news can be bad, and bad news can be good. The truth is you need to know how to react to what news articles you read. Unfortunately, it is in our blood to do the wrong thing first, and react out of emotion rather than common sense. Fortunately long-term investors are able to maintain a positive view of a company's prospects, and relish a decline in a stock's price. We never said it would be easy, frankly put... it isn't. I ask that you keep an open mind on the news that you read because the media tends to focus on the short-term, often placing importance on what happens or has happened over the course of a few weeks, if not days or even single trading sessions. The funny thing is that all traders alike would rather hear good news than bad news (Unless of course you are a bear). Yet if you think about it, at one time or another in your trading career, you would have to of heard the phrase "sell the news," as many short-term traders do just that. All we are saying is, instead of putting a huge emphasis on news articles (besides of course the announcements of dividend increase...BIG GRIN), try and put more technical analysis and research time into the financials of your selected company. Look into what type of dividend the company yields and if they are beating earnings estimates, etc.

With that said, Coca-Cola's revenues increased 8% to $10.19 billion over these past six months. This is a reflection of an increase in gallon shipments to its carriers. Their net income before accounting change increased 12% to $2.20 billion, which is a reflection of the inclusion of a $52 million litigation settlement.

KO's annual dividend is 0.88 c/share. This comes out to $0.22 per quarter, which is a nice incentive to start investing. They also yield a 1.98 percent dividend. Their next dividend payable date is on October 1st, 2003 (just one more thing to keep in mind if you are considering purchasing stock). If you compared this to Pepsi Inc. (NYSE:PEP) you would see that KO's dividend of 0.88 is much more appealing than PEP's dividend of 0.64. We feel it is always necessary to compare competitors of stocks when asking ourselves, "Which DRIP is the best DRIP for me?"

Coca-Cola has a dividend percentage growth rate of 11.11 percent over the next year. Over the next three years that percentage is expected to be at 7.72 percent and over the next five years they see this percentage resting at 7.39 percent.

We suspect that KO is so undervalued right now that getting in at its current price is definitely a bargain. Also worth noting is that it only costs a minimum of $10 a month to stay invested in this DRIP and that really is not a lot of money when you think about how expensive most things are in life. I always try and justify my DRIP plans by saying I can spend X amount of dollars going to the movies, or I can spend that same amount on a DRIP that is going to leave me something to retire on... one day! Have a great weekend. Or better yet, have a DRIP and a smile!

Until Next Week,
Nich Sheldon

***************************************************************** EDITORS NOTE:
The DripAdvisor.com Free Newsletter Link is currently in the process of being fixed. Our mail servers are back online and if you are interested in receiving the Drip of the Week articles and News and Views articles via email, visit www.dripadvisor.com next week to sign up. We will make a note on the site when the email version is reactivated. Thanks for your time, and have a wonderful weekend! *****************************************************************

Broker Recommendations

Strong Buy         2
Buy                8
Hold               7
Sell               0
Strong Sell        0

Brokers Covering  17


DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = Yes
Accept Foreign Accounts: Yes
Temper Enrollment:  Yes

Min/Max Investment = $10-$125,000/year


Reinvestment Fees - 
Dividend investment fees: None
Cash investment fees: None
Auto reinvestment fees: $1.00


Transfer Agent:
Fist Chicago Trust
888-265-3747


Corporate Headquarters:
Coca-Cola Co (Coke)
One Coca-Cola Plaza
Atlanta, GA 30313
Phone: (404) 676-2121
Fax: (404) 676-6792




 
 

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