The Motley Fool’s Take
Coca-Cola belongs to an elite group of companies that have increased their dividends every year for at least 50 consecutive years. The stock has a recent dividend yield of 3.1%, more than double the S&P 500’s yield of 1.5%. Of course, an above-average yield means nothing if the stock is down significantly. But Coca-Cola is on solid financial footing, and it has reasonable growth prospects for a 132-year-old company.
Don’t buy shares expecting rapid price appreciation — the stock has actually lagged the S&P 500 for much of the past decade. But in the coming years, it will likely continue to grow in value, and the dividend will likely continue to increase as well.
Coca-Cola has an iconic brand, unmatched distribution capabilities and a market leadership position. These qualities create pricing power and allow the company to consistently earn a higher profit margin than its peers. Greater profits allow Coca-Cola to reinvest in strategic growth areas, such as emerging markets throughout Latin America and the Asia-Pacific region.
The company is also looking for opportunities in non-carbonated beverage categories such as coffee (Costa) and sports drinks (Powerade, Bodyarmor. Additionally, Coca-Cola has recently begun experimenting with beverages that years, but it is likely to grow – while delivering some dividend income, as well.
Ask the Fool
From KR, Dayton, Ohio: What does “tax efficiency” mean for mutual funds?
The fool replied: The tax efficiency of a mutual fund describes what portion of the fund’s income is taxable. A fund with a low turnover rate generates less (or less) taxable distribution of profits or losses to shareholders, and is said to be “tax efficient.”
Funds focused on generating income are often less tax efficient because the dividends and interest they collect and send to shareholders are often taxable. Index funds are often more tax efficient, because they make fewer purchases and sales. (A fund’s tax efficiency is often related to its “turnover ratio” — how long fund managers keep securities in the fund after they are purchased. A low turnover ratio indicates less buying and selling activity , and, presumably, a more efficient fund .)
You don’t have to worry about the tax efficiency of tax-deferred accounts like traditional IRAs or 401(k)s. Dividends, interest and capital gains accumulate in those on a tax-deferred basis until you withdraw your money (or become tax-free in Roth accounts). Such accounts are good places for your least tax-efficient investments, such as stocks you plan to hold for less than a year and mutual funds with significant shorts. -term capital gains, dividends or taxable interest on the bond.
From AC: What is a “market maker”?
The fool replied: When you buy or sell stocks, your shares are not directly exchanged with another investor. Instead, the transaction is usually done through a market maker, an individual or company that buys securities from sellers and sells securities to buyers. This keeps the market liquid. Market makers do this to make a profit through the “spread” – the (usually small) difference between the buy and sell prices of a transaction.
The School of Fools
Putting off doing the important things is a bad habit – and it can be very expensive if you stop taking care of your finances. For example, don’t wait to pay off a high-interest loan or set aside money for emergency expenses. Delaying building your future financial security through saving and investing is another costly mistake.
This example can be eye-opening: Imagine that starting at age 40, you sock away $7,500 per year (that’s $625 per month), invest it in the stock market and earn an average annual return of 8% (For many decades, the stock market has averaged about 10% without accounting for inflation, although this is only an average. In your particular investment period, it may be more or less that.)
In 25 years, when you are 65, your money will grow to $592,100. But if you started five years earlier, at age 35, and your money grew over 30 years, you’d end up with $917,600. That’s a difference of over $325,000! (Continue this for another year, and your nest egg will accumulate another $81,500, growing to $999,100.)
It’s hard to avoid accumulating wealth if you regularly plow large sums into the stock market – and stick to the plan, doing so for years. At first your money usually won’t grow much from one year to the next (so don’t get discouraged!), but after a decade or two, you could be earning $100,000 a year or more just by growing your money and by increasing it.
The stock market is one of the most reliable ways to build long-term wealth – and simple, low-fee index funds, such as funds that track the S&P 500, are a great way to investing in it. A good way to start is through a 401(k) plan at work, if your employer offers one: Its menu will likely include a low-fee index fund or two. (If your employer matches contributions at any level, be sure to contribute at least enough to top that match.)
My Only Investment
from S.: My most regrettable investment move was ignoring SunEdison and Peabody Energy before they filed for bankruptcy protection. Now I’m stuck!
The fool replied: Well. Both companies faced serious challenges and ended up filing for bankruptcy protection.
Renewable energy business SunEdison is in trouble after aggressively trying to grow by borrowing to buy other companies. Coal producer Peabody also took on heavy debt, in part to expand in Australia, and was hurt by falling coal prices.
As you’ve learned the hard way, it’s important to keep track of your assets — ideally, at least quarterly. Many people who didn’t care before were surprised when major companies like Delta Airlines, General Motors, Hertz, Kodak, JC Penney, Pan Am and Texaco filed for bankruptcy protection.
If you keep up with your investments by reviewing financial statements and news stories, you’re more likely to notice when a company is struggling. It’s always better to move on when the troubles seem temporary, but more worrisome problems can cause you to sell. It’s true that many companies file for Chapter 11 bankruptcy protection only to later exit and continue operating — but when they do, new stock is usually issued, and shareholders are left out. yet bankruptcy often find themselves with little to nothing.
Who am I?
I trace my origins back to 1946, when a former grocery stock boy and his wife launched Zero Foods to sell and distribute frozen foods. In 1969, it joined eight other small food distributors, forming me. I am growing and expanding, offering meats, fish, fresh produce and more. Today, based in Houston, I am a food distribution titan, with a recent market value of nearly $38 billion. With 70,000-plus employees and 334 distribution centers, I deliver to about 725,000 locations, including restaurants, hotels and health care and education facilities. I make over $75 billion a year. Who am I?
Don’t remember last week’s question? Find it here.
Last week’s answer: Fidelity Investments