When I talk to my investing friends, most of whom are 30-something professionals, we like to swap our latest picks. Invariably, most of what I hear about is the latest speculative names, such as how an investment in HEMP, INC. (PINK:HEMP) is going to put my grandkids through college . Even the more “conservative” of the bunch will say things like “Google Inc (NASDAQ:GOOG) is going to $1000 this year! I’m putting half of my savings in it!”
While this may very well be the case, Google could just as easily fall back to $600 a share after a mediocre earnings report. Hemp, Inc could make its investors rich, but I give that a 5% chance of happening--and that is being generous. Nobody should be willing to lose 25% or more of their long-term savings, no matter how good the potential rewards may be.
When I tell my friends to put a substantial chunk of their savings in an established giant dividend-payer like The Coca-Cola Company (NYSE:KO), they laugh and tell me about my “boring” portfolio. While I agree that it is fine to speculate a bit with some of your discretionary cash (I certainly do), Coca-Cola is the perfect example of a stock that you should hold for the long term. And 9 times out of 10, these “boring” stocks outperform their exciting counterparts over the long term.
As most people already know, The Coca-Cola Company (NYSE:KO) is the world’s largest soft drink company, with sales of almost $50 billion per year. Their products are now sold in more than 200 countries, and they own (or license) over 500 brands. Despite this last fact, I believe there is still room for Coca-Cola to grow, particularly internationally, since over 44% of the company’s revenue still comes from North America. Compare that with the 11.7% of revenues that come from Asia, despite their massive population, and it’s easy to see potential here.
Over the long term, few stocks have had the consistent performance of Coca-Cola. They excel at two areas that long term investors love: dividends and buybacks. As far as buybacks go, over the past two years alone the company has reduced the amount of outstanding shares from 4.67 billion to 4.48 billion, a 4.1% reduction. The Coca-Cola Company (NYSE:KO) also pays a nice dividend of almost 3% currently, and it has raised the amount of the dividend every year in recent history.
With its record of stability and returns, it is no wonder that Coca-Cola trades at a premium to many other companies. Currently trading for 20 times TTM earnings, analysts are projecting an average annual earnings growth rate of 9% going forward. Again, this multiple seems a bit high; however, this kind of rock-solid investment is hard to come by these days, so investors are willing to pay a premium for it.