1 Hold-Forever and Never-Worry Dividend Stock

Remember Rip Van Winkle? He took a nap and didn't wake up for 20 years. Rip probably wouldn't be the best investor in today's world -- or would he? Are there stocks that a person could buy today and hold for 20 years without worrying about them? While few stocks merit this type of confidence, I think Coca-Cola (NYSE: KO  ) does. Here are two reasons why.

Enduring demand
If you're taking the Rip Van Winkle approach to buying a stock, you want a high degree of confidence that the company's products will still be selling well at the end of 20 years. Will Coke lose its sales fizz over two decades?

Consider that the company has been around for 125 years yet demand for its products is still increasing. "Coca-Cola" has been documented to be the second most widely recognized term in the world -- after "OK." On average, every person on earth consumed 92 servings of Coke beverages in 2011, according to the company. You could safely say that Coke isn't a passing fad.

In comparison, Monster Beverage (Nasdaq: MNST  ) has been around 22 years. Their energy drinks and other beverages are quite popular, with sales of nearly $2 billion in 2011. But could you envision a scenario where the company isn't as successful as the past? The thought of buying Monster Beverage without frequently reevaluating the stock seems scary.

Endearing dividends
When you're looking at holding a stock for 20 years, dividends make a big difference. Coke currently has a 2.6% dividend yield. The company also has a history of 50 consecutive annual dividend increases with an average increase of 9.8% over the past 10 years.

Here's what these numbers mean. Let's say you bought Coke stock today and reinvested all dividends into more shares. If the company continued increasing its dividend at the same rate as it has in the past decade, your account value would roughly quadruple in size by 20 years from now -- assuming the stock price didn't change by a penny.

Granted, this calculation didn't include taxes on dividend payments nor did it include the impact of inflation. Then again, we assumed a nonsensical premise that the stock price wouldn't increase: Coke shares increased more than 360% over the past 20 years, without counting dividends.

Rival Pepsico (NYSE: PEP  ) looks good on the dividend front, too. The company has raised its dividends for 40 consecutive years with an average increase of 14.1% over the past 10 years. There must be something in the carbonated water.

Sleeping with a smile
Anything can happen over a long period of time. Even a stellar company like Coca-Cola could potentially stumble. Checking on your investments regularly is a good idea.

There is wisdom, though, in buying stocks that you wouldn't mind holding for 20 years or more. Coca-Cola is an exceptional company that you could own for a long time. If you want to take an extended nap, buying Coke will help you sleep -- and wake up with a smile.

Stocks like Coke that pay great dividends have made investors smile for years. To learn about more great dividend ideas, check out The Motley Fool's new free report, "The 3 Dow Stocks Dividend Investors Need." Get your copy by clicking here.

Fool contributor Keith Speights has no positions in the stocks mentioned above. The Motley Fool owns shares of Coca-Cola and PepsiCo. Motley Fool newsletter services have recommended buying shares of Coca-Cola and Monster Beverage. Motley Fool newsletter services have recommended buying shares and creating a diagonal call position in PepsiCo. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (8) | Recommend This Article (16)

Comments from our Foolish Readers

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  • Report this Comment On July 05, 2012, at 11:43 AM, J4bber wrote:

    While this may be true, KO is STILL lower than it was at its all time high back in July 1998. Now it is getting back close to that level. One broken, a stock typically continues to make all time highs. I am starting a position in KO today and will buy more if it breaks its all time high.

  • Report this Comment On July 05, 2012, at 2:26 PM, dctodd27 wrote:

    There is no such thing as a Hold-Forever Never-Worry stock.

  • Report this Comment On July 06, 2012, at 7:19 AM, dbtheonly wrote:

    dctodd,

    Isn't that the exact question? A simple denial makes no argument.

  • Report this Comment On July 06, 2012, at 9:19 AM, dctodd27 wrote:

    @dbtheonly -

    No, there is no question. If KO (or any stock for that matter) was guaranteed to produce "worry-free" 20 year returns (like this article suggests) then you should put all of your money into it, right now, today. No such stock exists, or will ever exist. The main problem is, the author of this article doesn't differentiate between the business and the stock price. At 21 times last year's earnings and THIRTY times its 10-year average earnings (which Ben Graham recommended using), the odds of KO producing "worry-free" gains for the next 2 decades is remote.

    As a follow up, here is the worst sentence of this entire article:

    "Then again, we assumed a nonsensical premise that the stock price wouldn't increase: Coke shares increased more than 360% over the past 20 years, without counting dividends."

    Why is this a nonsensical premise? Is the author implying that past performance is indicative of future results?

  • Report this Comment On July 06, 2012, at 1:14 PM, dbtheonly wrote:

    dctodd,

    Where we sit, 1:00, KO is off about half of the % of the DJI.

    Currently KO pays about 2.6%/yr in dividends alone.

    KO has increased their dividends annually for the past 50 years.

    You may argue that with every man, woman, & child guzzling 92 Cokes per year there is not much room for growth. And I'll give you that KO at $63 was a much better buy than KO at $78.

    Past performance is indicative of future results. It is not controlling by any means, but indicative, yes. We look at what any stock has done in the past as part of our research as to what it might do in the future. The author's point is that the dividends alone will provide a more than adequate return even without any increase in stock price. But yes, past performance does lead me to believe that KO will not have an Enron like melt-down.

    Yes, I do have my trailing stops in place for KO as well as the other stocks I own. But KO is about 15% of my portfolio & I don't lose sleep over the investment. It is about as close to a perfect stock as one can get.

  • Report this Comment On July 06, 2012, at 2:05 PM, dctodd27 wrote:

    @dbtheonly

    "Past performance is indicative of future results. It is not controlling by any means, but indicative, yes."

    Good luck.

  • Report this Comment On July 07, 2012, at 4:49 PM, tweenthelines wrote:

    Motley and contributors should get off this percentage kick and start giving the raw numbers (dollars) Anyone reading these pages in adept at making their own time value calculations.

  • Report this Comment On July 13, 2012, at 10:26 AM, DocDeVore wrote:

    Keith, you are an awesome writer, and your stock advice is just as good. Congrats on the new gig!

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