$ 120 investment in Coca-Cola IPO would be worth that amount now
The IPO of Coca Cola (NYSE: KO) took place over a century ago. The company issued 600,000 publicly available shares in September 1919 at $ 40 per share, according to a press release from the company.
Coca-Cola had already evolved considerably since Atlanta pharmacist John Stith Pemberton invented the original soft drink formula in 1886. However, few people could possibly imagine where Coca-Cola or its stock would go in decades. future.
The value of Coca-Cola today
Consumers can now find Coca-Cola products in more than 200 countries. It has also grown into a beverage empire encompassing over 500 brands in many types of beverages, although it intends to reduce this number over the next few years.
Yet such a footprint means that the stock of Coca-Cola, like most everyday consumer stocks, tend not to get as much attention as newer, higher growth stocks.
Still, for investors who imagine the time horizon of owning a stock decades away, the returns look considerably more impressive. Throughout its history, Coca-Cola has experienced 11 stock divisions. Thus, a share sold in 1919 has now become 9,216 shares.
Therefore, if one of your ancestors bought three shares of Coca-Cola for $ 120 on the IPO and ultimately handed over the divided shares to you, those 27,648 shares would now be worth over $ 1.483 million.
The Coca-Cola dividend
The company also made its first dividend payment in 1920 and has paid nearly 400 consecutive quarterly dividend payments since then.
Today, the dividend payment is $ 1.64 per share. Multiply those 27,648 shares by the dividend and you will have an annual dividend income of $ 45,342 last year to add to the share price. At the current share price, the dividend pays around 3.2%. To put this in perspective, the S&P 500 Index the average dividend yield is approximately 1.6%.
While this return sounds compelling to a new investor, the bulk of the benefits went to those who held the stocks for the long term. Coca-Cola implemented its 58th consecutive annual dividend increase in February. Only a handful of stocks have a longer history of back-to-back dividend increases than Coca-Cola. These stocks, along with Coke, are known as The kings of dividends.
Of course, the payment has become a major expense for the company. The dividend claimed roughly $ 3.5 billion of the company’s $ 5.5 billion free cash flow in the last quarter.
Nonetheless, this makes the payment sustainable. More importantly, given that breaking the long payout streak could undermine confidence in the stock, investors can likely expect another payout surge next year and years to come.
Warren Buffett and Coca-Cola
The payout, along with the overall value proposition, is what likely drew Warren Buffett into action. His company, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), made its first purchase of Coca-Cola shares in 1988.
Buffett would then invest around $ 1.3 billion in Coca-Cola. The company now owns 400 million shares, or 9.3% of Coca-Cola shares. This stake is worth around $ 20.6 billion today.
The stock has only risen a little over 60% over the past 10 years, significantly underperforming the S&P 500. Nonetheless, Buffett is likely happy with Coca-Cola’s performance in a critical respect.
This year, its 400 million shares generated $ 656 million in dividends. This is a ROI of over 50%, which means he is currently receiving the money on that investment (and more) every two years without selling a single share!
The Coca-Cola Stock Lesson
Indeed, most investors do not have an investment horizon of 100 years. Even if they did, they shouldn’t expect any stock today to divide into over 9,000 in a century. Since Coca-Cola is now available in almost every country, driving growth has become a more difficult challenge.
Still, the fact that dividend yields are about double the S&P 500 average may attract new investors today.
Moreover, even if investors decide not to buy Coca-Cola shares, it offers a critical lesson. Investors like Buffett who find a strong business and hold onto it for decades could earn huge rewards.
It’s a huge incentive to ignore the daily machinations of a stock. Instead, the biggest rewards might come from shareholders who focus on long-term growth and quietly collect dividends.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.