Back in May, when I last discussed Coca-Cola (NYSE:KO), the stock was priced at $63.58. Fast forward to September 10th, and it’s now trading at $71.69, marking a 12.7% price increase.
Additionally, shareholders would have enjoyed a quarterly dividend payment of $0.485. Today, September 13th, also happens to be an ex-dividend date.
Given that Coca-Cola’s stock price is at all-time highs, there’s speculation that the company might be due for a stock split – a strategy it has historically employed multiple times.
Here’s why this might be the case and whether Coca-Cola still represents a good buying opportunity.
Coca-Cola stock split history
Coca-Cola has a long and rich history of stock splits, aiming to keep its shares accessible and appealing to retail investors. Here’s how a single share would have evolved over the years if you had owned it from the beginning:
- September 5, 1919: Starting with 1 share.
- April 25, 1927: The first split – a 1-for-1 stock dividend – doubled your holdings to 2 shares.
- November 15, 1935: A 4-for-1 stock split then increased your shares to 8.
- January 22, 1960: A 3-for-1 stock split expanded your holdings to 24 shares.
- January 22, 1965: Another 2-for-1 stock split doubled your shares to 48.
- May 13, 1968: Continuing the trend, another 2-for-1 split increased your shares to 96.
- May 9, 1977: The 2-for-1 split doubled your shares again to 192.
- June 16, 1986: A 3-for-1 stock split expanded your holdings to 576 shares.
- May 1, 1990: Following this 2-for-1 stock split, your shares doubled to 1,152.
- May 1, 1992: Yet another 2-for-1 split brought your share total to 2,304.
- May 1, 1996: This 2-for-1 stock split would have doubled your shares to 4,608.
- July 27, 2012: The most recent 2-for-1 stock split brought your holdings to 9,216 shares.
With the last split occurring in July 2012, I think Coca-Cola is long overdue for a split, especially in light of its strong recent performance.
There’s historical precedence for this too – before the July 2012 split, Coca-Cola’s board of directors recommended it when the stock was trading around $74. It’s getting close to that level right now.
Is Coca-Cola a buy?
Coca-Cola is indeed a dividend king, boasting an impressive 62 years of consecutive dividend increases.
This status is backed by strong efficiency metrics like double-digit margins and a solid return on equity, paired with a low volatility measure, with a beta of 0.6.
However, despite these attractive features, the stock appears to be overvalued at the moment. Its current dividend yield is 2.7%, which is 15% below its historical five-year average.
Moreover, its forward price-to-earnings ratio stands at 23.8, translating to an earnings yield of just 4.2%.
Ideally, for a stock to be attractive, I’d like to see its earnings yield exceed the yield on safer investments like the current U.S. 10-year Treasury, which is around 3.7%.
This helps ensure that the risk you’re taking by investing in stocks, rather than safer government bonds, is compensated by a higher potential return.
Given these factors, I would rate Coca-Cola as a ‘hold’ for now. If you currently own shares, it’s wise to continue collecting the steadily growing dividends and stay the course.
