Coca-Cola increases Dividend, Aflac splits Stock

After the last week of January and the first week of February had really bad results the US stock markets rebounded to some degree and ended the past week being one of the best for many years. Markets go up and down. We believe there was an exaggeration building up in particular in November, December and January when P/E ratios were too high in our views. The correction brought them back in line somewhat. Compared to historical values we think some shares are still too expensive. Or they have become too expensive again after the rebound this week. Our US portfolio did better again than the S&P 500. Unless something bad happens, this should show in the results for this month which we will announce early March. Let’s instead look at a few companies that made the news this week.

Coca Cola (KO) announced results that in our view are encouraging. Management continues to work on improving KO’s operation. For example they are moving back to having franchisees own and operate bottling. As a result overall revenue decreased by 20% but organically volumes were flat while the tea and coffee segment increased by 2% and so did the water and sports-drink volumes. Juice and dairy beverages decreased 2%. For the 2017 year organic sales are up by 3%. The tax changes in the US cause a one-time cost of USD 3.6 billion, resulting in a quarterly loss of USD 2.8 billion. Without the tax impact, this would mean profits of about USD 800 million compared to about USD 550 million a year prior. Factors helping with the bottom line were smaller packages sizes and improving sales from markets like India and Brazil. KO has increased their dividend for 55 years and this year is no difference with an increase to USD 0.39 per share from USD 0.37 per share payable this quarter. And as a kind of icing on the cake we also take note that Warren Buffet has held KO shares for many years.

While we are at it, a note regarding Warren Buffet: We very much like his buy-and-hold approach. This is very much in line with our thinking, too. At the same time, we don’t just buy what he is buying. Instead, we try to apply his investment principles and they influenced significantly our set of rules that we use for managing our US portfolio.

Next up is Aflac (AFL). They have just announced a 2-for-1 stock split. That means for each share you already hold you will get one for free. Don’t get overly excited, though, as it will not increase the value of your position. At the moment the shares are at approx. USD 80. After the split there are twice as many shares but their price will be roughly half at perhaps USD 40. So if you had 100 shares at USD 80 worth USD 8,000, then after the split you’ll have 200 shares at USD 40, again worth USD 8,000. So, then, you ask, why would a stock split be beneficial? It keeps the stock price visually low. To a lesser degree it makes the stock more accessible for smaller portfolios, ie it’s easier to adjust the number of shares to exactly that amount of money you want to invest. If the price was at, let’s say USD 1,000 and you want to invest only a small amount, then you could buy one share or two or something like that. Note this applies mostly for very small portfolios. In comparison if a share is at USD 100 you can decide to invest USD 1,500 by buying 15 shares. You can’t buy 1.5 shares of the other company. And there is a similar effect when selling. In general, we take a stock split as a sign that the management and the board of directors are very confident that their company will continue to do well in the markets. So, AFL’s announcement is positive news.

Happy investing!

Disclosure: We hold shares of Coca Cola (KO) and Aflac (AFL). We have no plans to change our positions within 48 hours after publishing this post.