The Coca-Cola Co (KO): A Safe Dividend King Trading At Its 52-Week Low

Valuation

Despite Coke’s recent correction, shares are still trading at a trailing P/E of 24.9, in line with the broader market’s frothy level of 25.4. With Coke’s 13-year median P/E a much lower 20.5, the shares are not exactly a screaming deal right now.

Coca-Cola’s shares also trade at a forward P/E multiple of 20.7 based on 2017 earnings estimates – hardly cheap given the company’s questionable future growth prospects.

For investors primarily concerned with the dividend, and from the perspective of the forward yield, things look a little different.

Specifically, over the past 13 years Coke’s dividend yield has ranged from 2.1% to 4.0%, with a median value of 2.8%. So from a historical yield point of view, shares are currently 21% undervalued relative to history.

That’s not to say that, with the market once again hitting all-time highs, that a broader correction might not send shares lower. For example, if Coke were to hit its historic high yield range of 4.0%, that would imply a share price of $35, or 15% below the current price.

However, given the company’s quality brands, strong competitive advantages, reasonable long-term growth plan, and rock solid dividend security, that risk level could be acceptable for investors with a long time horizon and confidence in Coke’s turnaround plan.

Conclusion

Despite its recent growth headwinds, Coca-Cola’s latest long-term growth plan is likely to allow this legendary dividend growth blue chip to continue rewarding dividend investors with many more years of strong payout growth.

With shares now just 1% off their 52 week low, and the yield at a historically high level, today could be a reasonable time for conservative income investors living off dividends (3) to give The Coca-Cola Co (NYSE:KO) a closer look for their diversified dividend growth portfolios. Assuming management is able to deliver on its plans, Coke is also likely to remain a solid business for years to come. After all, the company is still a core holding in Warren Buffett’s dividend portfolio for a reason.

Disclosure: None

Additional Links:

(1) http://fortune.com/2016/03/29/soda-sales-drop-11th-year/

(2) http://www.simplysafedividends.com/top-10-financial-ratios-dividend-investing/

(3) http://www.simplysafedividends.com/living-off-dividends-retirement/