Thirsty For Income? Consider This Strategy: The Coca-Cola Company (KO)

Page 1 of 2

I read an article extolling the virtues of PepsiCo, Inc. (NYSE:PEP). The author said that he believed that Pepsi would continue to increase its dividend, and they might grow earnings faster than analysts expect. He also made the comment that their cash flow from operations compared to their dividend looked good. I can’t say that I disagree with most of his thesis, but I would suggest investors think outside the box when it comes to generating income. Though there are several beverage companies that should provide a good yield to investors in this environment, there is a less well known company where the income stream might be even better.

The Coca-Cola Company (NYSE:KO)

This Is No DRIP Of A Strategy
If you are a long-term investor, a choice between The Coca-Cola Company (NYSE:KO) or PepsiCo is a common conundrum. On the one hand, Coca-Cola has been the leader in both volume and earnings growth for a while. The company has several of the world’s most well loved brands. PepsiCo on the other hand, has the Pepsi franchise and Frito-Lay. Both companies have long histories of raising their dividends.

Many investors choose to buy their shares and reinvest the dividends through a DRIP (dividend reinvestment plan). If you buy shares in Coca-Cola, you’ll get a yield of about 2.7%. By reinvesting your dividends, you can increase your effective yield over time. You can do the same with PepsiCo and start with a slightly higher yield today at just under 3%.

In the last few years, Pepsi’s free cash flow payout ratio dropped from 58% to 56%. The company’s free cash flow has been growing at about 11% annually. Prior to 2008, 15% dividend increases were the norm. After 2008, the average increase was about 6%. Coca-Cola’s free cash flow payout ratio has increased from 62% to 66%. The company usually increased their dividend by over 11% until about 2008, and then 7.6% increases became the norm.

For Those Who Want More
However, what if you are an investor who is willing to take on more risk? Is there a way to trounce these yields of 2.7% and 3%? In short, yes there is, but it depends on what you think of options. By writing covered call options, you can potentially generate significantly more income than collecting dividends.

In order to “write” a covered call you have to own 100 shares of the stock. You essentially agree to rent your 100 shares to someone else for a certain amount of time. You “write” or “sell to open” the call option and you get paid a premium. The great thing about covered calls is you keep the premium no matter what happens.

What Do You Do?
First, you pick a price that you are willing to sell your shares at. Usually a price just above the current price gives you more income. You can use this strategy with Coca-Cola or PepsiCo, or go in a different direction and choose Sodastream International Ltd (NASDAQ:SODA).

For those who don’t know, SodaStream is the company that produces the popular SodaStream machines. In case you haven’t heard, SodaStream allows you to make soda or other sparkling beverages at home. The company suggests that their product is better for the environment, costs less per serving, is more convenient, and is a healthier option. The stock has done well recently, and the company has consistently beaten earnings estimates.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!