Blast From the Past

A little unsure as to what I was researching when I ran across this ancient nugget from 2012.  I don’t recall having read it when it was fresh, but has some similarities to my investing style outside the world of Coke – particularly with the international bent.  I’ll also point out this predates the 21st Century Beverage Partnership Model where Coke essentially attempted to become a marketing engine leaving the capital intensive bottling and distribution operations to a handful of larger (facilitated by mergers) bottlers.  For today, I’ll ignore the 32 (give or take a couple) family owned operations that are basically distributors – or bottlers in name only. These buy product from larger bottlers, warehouse it  and deliver to commercial customers. I suspect these little guys won’t be long for the world as they’ve lost any economies of scale.

The impetus for this piece came from the final comment from NeoContrarian where he asks (a year ago), “This is an excellent article:- What’s the current update 6 years on???” Given the author hasn’t published anything since 2016 and I now have a vested interest, I figured it apt to address this question – particularly with the change in the business model.

I have stakes in seven of these bottlers with a pending limit order for an eighth, so allow me to correct a mistake the author made.  The list of companies contains duplicates – either with a class of stock (AKO.A/B) or CCLAY/F. The former has greater economic interest (votes) but a lower dividend while the latter is the ADR versus in country OTC listing.  The ADR withholds taxes (net payout) while the F version is the gross payout leaving the investor having to deal with those details.

Subsequent to her piece, Coca-Cola Hellenic began trading on the LSE (not NYSE) and moved its’ HQ from Greece to Switzerland, Coca-Cola Enterprises ultimately morphed into Coca-Cola European Partners, HQ UK; and Mikuni Coca-Cola merged into Coca-Cola East, which merged with Coca-Cola West becoming Coca-Cola Japan.  Also, Coca-Cola İçecek.’s ADR program has been cancelled.

I tried to retain the structure she used but made a few modifications; removed dividend growth and comparison to KO’s and added % owned by KO.  Being primarily foreign companies, dividend growth is less telling than the US as the vast majority of payouts are based on a percentage of profits.  Perhaps a profitability growth rate should be included instead.

I will editorialize that it appears the results are mixed in KO’s move out of bottling.  They have succeeded, for the most part in the domestic market – at least in avoiding reporting consolidated results.  The failure has been in foreign markets as several remain owned – at least in the majority – by KO. These include Africa (68.3%), The Philippines and Bangladesh (100%).  KO also retains significant stakes of between 14 and 34% in nine of the publicly traded bottlers. This analysis excludes privately owned companies with the exception of Joint Ventures that include public companies.

a/o 8Dec2019

Yes it remains possible to muster a dividend yield piggybacking on KO’s marketing prowess.  There are risks, chiefly currency and political. For instance, Zimbabwe faces a hard currency shortage leaving Heineken unable to repatriate their profits.  The reason I have no intention of buying Hellenic or İçecek. Is their exposure to Russia and Turkey respectively. Future administrations may revert back to normal putting undue risk on the table.

The one aspect I didn’t anticipate was the consolidation of bottling operations into the larger operators leaving the smaller players as merely distributors.  That is one way to spread the capital intensiveness into manageable pieces and is probably one reason for their performance.

There are risks as well as potential rewards – perform your own due diligence.

Own: CCEP, KOF, AKO.B, CCLAY, SWRAY, KNBWY, COKE.  Open order: CCOJY

My 2017 Strategy (Coca-Cola)

Usually during the third quarter of each year I analyze my portfolio’s performance, do a little tweaking and cast about for an underlying strategy for the new year.  2016 was especially difficult due to a couple of mergers wreaking havoc on my portfolio structure as well as the uncertainty caused by the election.  The easy fix is to add to my anchor, core and satellite holdings at reasonable price points to get them to their target weightings.  This is illustrated by my recent purchases of KMB, CLX and SBUX with more to come.  The more difficult issue was identifying potential value plays for an ancillary portion of the portfolio.

Continue reading

Jan 2017 Update

January saw DOW 20,000 being attained before dropping under once again.  The post inauguration euphoria  beat a hasty retreat in the wake of record protests, a wave of executive orders and a record number of lawsuits filed against a president in his first eleven days.  In finance terms, this uncertainty translated into concerns about the the ability or  time required to effect change through the legislative process – in particular tax reform.  This month The S&P gained 1.79%.  while my portfolio recorded a gain of 3.51% largely due to the final significant merger completing.  After a great 2016, I’m making some changes in my 2017 strategy that will (hopefully) accelerate performance in 2018.  Meanwhile I’ll be content with a slight win versus the S&P this year.

Headlines impacting my portfolio:

  • 1/5 – WMT ends V ban in Canada
  • 1/9 – SBUX discontinues Evenings concept
  • 1/10 – NWBI divests MD assets to SHBI
  • 1/13 – LSBG/BHB merger completes
  • 1/17 – ADP acquires Marcus Buckingham Co.
  • 1/20 – IRM acquires Kane Office Archives LLC through BK court
  • 1/23 – AMC acquires Nordic Cinema
  • 1/24 – Executive order moving Keystone (TRP) forward signed
  • 1/25 – DOW 20,000
  • 1/25 – BLK moves 1T$ from STT to JPM
  • 1/26 – JNJ to acquire ALIOY then spin R&D unit to ALIOY shareowners
  • 1/30 – GDOT buys UniRush (RushCard)
  • 1/31 – BX prices INVH IPO

Blog Updates:

posts under consideration for Feb are Methods to my Madness Pt 3 update, Anti-Trump strategy, My Coca-Cola strategy and The Commonality Between Trump and Me

Portfolio Updates:

  • Added to CLX
  • New position – CCLAY
  • New position – BHB (LSBG merger)
  • New position – SWRAY

Dividends:

  • January delivered an increase of 15.46% over January 2016.  This requires normalization due to PEP and WRE paying in January rather than December, KO paying in December rather than January and BUSE paying in February.  On a normalized basis, this represents a Y/Y increase of 3.1% which is attributable to dividend increases (Y/Y).  This means my October purchases from merger proceeds were successful in maintaining my Jan,Apr,Jul,Oct income stream.
  • January had a 3.0% increase over the prior quarter.
  • Declared dividend increases averaged 7.44% with 19.65% of my portfolio delivering at least one raise (1 cut – YUM).
  • Dividends received were 9.2% of total 2016 dividends and if the current run rate is maintained would exceed this total around October 15th.

Spinoffs:

The MET spin (Brighthouse Financial – BHF) remains pending.

Mergers:

Agrium/POT, JNS/HGG.L remain pending

Recent Buy – CCLAY

cclay

I enjoy visiting others’ blogs and reviewing their portfolios.  At times my investing approach is validated other times I get a fresh viewpoint.  There are occasions when a company that is not on my radar grabs my attention.  Such was the case when I ran across Dividenden Investor‘s holdings.  In his depot, Coca-Cola Amatil can be found.  The name Coca-Cola was the reason for my intrigue and just had to figure out what sort of creature this one was.

Coca-Cola Amatil trades on the Australian exchange under the symbol CCL with their ADR trading in the states as CCLAY.  They are one of Coca-Cola’s (KO) anchor bottlers under the 21st Century Beverage Partnership Model that KO is evolving towards.  Amatil’s territory includes Australia, New Zealand, Indonesia, Papua New Guinea, Fiji and Samoa.  They are a bottler for Coca-Cola products plus liquor (Jim Beam, Maker’s Mark, et.al.), coffees and foodstuffs.  Coca-Cola has a 29% ownership.

Coca-Cola Amatil pays a dividend twice per year on an interim/final schedule with franking credits.  Recently, the credit has been between 75-100% which translates to no or minimal double taxation for US investors.  At yesterday’s purchase price, the dividend yield translates to roughly 5.9%.  There is a risk of currency fluctuation as dividends are declared in Aussie$.

This is a continuation of my theory of the US$ being overvalued so my intent is to buy while it’s high and collect increasing dividends through the exchange rate.  Of course there’s the risk the US$ will stay strong if a border tax is enacted.