Over the last few months, I’ve been shifting my view of my entire portfolio from being a collection of “stocks” to a collection of “businesses”. This is also a point that fellow blogger Dividend Mantra pointed out, in his recent post, Warren Buffett’s Wise Words. Mantra’s recent post really hit home for me and I’m sure for many other dividend investors as well. A recent post on the Dividend Ninja by Dan Mac, Find Investment Success with a Business Point of View, also hit home along the same line of thought.
Last week, with this in mind, I made a couple of changes to my portfolio. I sold positions in one company and some of my bond holdings, in order to purchase “businesses” I wanted to own. I purchased 50 shares of McDonalds (MCD) and added 30 shares of Coca-Cola (KO). What did I sell? You’ll have to wait until next week of course to find out, but here is why I bought MCD and KO.
Back in March 2011, I purchased 20 shares of MCD at $75.00 per share – it was the only investing capital I had available. At the time many investors felt the price for McDonald’s (MCD) was overvalued at $75, and others like myself, felt MCD was a bargain. Had I more capital I would have certainly bought more shares. For the remainder of the year MCD rose up to $100 per share, and that was my sell-point for MCD. I wrote an article back in December 2011, Is McDonalds Overpriced Part-1?
In early January 2012, I sold MCD at $100 per share and took a $500 profit off the table. The question is was it worth taking profit, or simply holding and buying more? By chance McDonald’s declined from its $100 lofty price point, and has settled back to around a support level of $85 to $87 per share. I’ve now decided to re-enter my position in McDonald’s as a long-term buy-and-hold, and on Thursday purchased 50 shares @ $86.50 per share. I feel this is an excellent entry point for MCD, and I was able to purchase before the ex-dividend date on November 29th.
Hank Coleman recently discussed McDonald’s at the Dividend Pig, in Why McDonald’s Dividend Looks So Juicy. One interesting point that Hank made, is that MCD has funded its dividends from cash.
Another solid business to own is Coca-Cola (KO), and it’s also a favourite among dividend investors. Although it has a lower yield at 2.75%, it is one of those stocks that just keeps moving higher. Coca-Cola has had continuous and stable growth since March 2009, soaring from $19.55 per share (split adjusted) to a high of $40.42 on July 30th, 2012. In 3 ½ years, the price of KO had doubled, with its current price at $37.08 per share. Dan Mac recently wrote why he thinks KO is a good investment, in An Investment in Coca-Cola.
Back on August 13th 2012, Coca-Cola had a 2 for 1 stock split at $38 per share. The split was Coke’s 11th in its 92-year history and the first in 16 years. Although the split makes no difference in terms of return or yield for an investor, it does make the stock more affordable. This was a good opportunity for me to enter a position in KO, which I did back on August 20th, 2012 for $39 per share. I also wanted to top-up before the ex-dividend date on November 28th, and last week added another 30 shares at $37.00.
Many have viewed KO as being currently over-priced, with its continued run-up in price. In a recent article, Is Coke Being Valued Like a US Treasury?, Eddie Elfenbein asks if investors are over-paying to own Coke. Eddie writes, “The major mispricing in the market right now is that investors are vastly over-paying for security, and they are under-paying for risk.” Although a great article, I personally have no idea whether Coca-Cola is undervalued, overvalued, or priced just right. What I do know is that the market is the fair price of a stock, whether I believe it to be or not. I also know Coca-Cola is going to be around a lot longer than I am! Eight years from now in my early retirement, I’ll probably be glad I bought at an average price of $38. Coca-Cola is now one of my long-term buy and hold companies.
Just like real life, McDonald’s and Coca-Cola make a great combination! These are two companies that are going to provide a solid dividend foundation to my retirement. As another dividend blogger recently said to me, “I really get a kick out of drinking a Coke or eating at McDonald’s knowing I own a portion of the company.”
Readers, what’s your take? Do you own MCD and KO, and are you buying at these price points?
29 thoughts on “Recent Buy: McDonalds (MCD) and Coca Cola (KO)”
I own both companies and I’ve had a similar buy in price as yours. My purchases were made last month.
I acquired them from my put options getting triggered so my buy in price was a little lower because of the income from the sale of the put option.
My plan is to hold on to both of these stocks forever and I plan on increasing my holdings in both.
Vikas, using Put Options was a great way to get into these stocks, and you recieved the upfront benefit of the premium. Now that you own them, holding is the best strategy of all. 🙂
Others have asked me why I don’t use
Call OptionsCovered Calls. But why would I want to give up MCD and KO on the upside?
You are correct, I stay away from Call options like the plague. Put options however make dividend investing so much more interesting and I only write put options for what I can afford, i.e. having the cash sitting in the account should the option get triggered on the strike date.
My mistake Vikas, I meant “Covered Calls” 🙂
I do in fact own both, small positions, but a starting point nonetheless, I also just opened a US acct where I intend to purchase more with Greenbacks.
Great article on stocks as businesses
Andy, perfect! You can now avoid the US exchange premium that TDW dings me with on every US trade. Keep those positions, and just keep adding to them in the years to come – you will be glad you did. 🙂
I think you’ll be pleased owning both of these companies. I know I have been. I think my favorite part about this article is the picture of the MCD sign that says “Billions and Billions Served” and I’m sure there will continue to be billions served into the future. Being an owner of this company I will benefit by thier continued success!
That’s more readers than both our blogs combined! LOL 🙂
These are two companies I can buy without any fear – even if they temporarily dip. Excellent stocks for the long run. The recent pullback in MCD is a very good opportunity for long term investors.
MoneyCone, I couldn’t have said it better. 🙂
As a Canadian, what account did you put these two American stocks in? Thanks.
Marko, the RRSP is the only way for Canadians to shelter U.S. investment income, whether dividends or capital gains. The TFSA doesnot shelter U.S. taxable income such as dividends from U.S. corporations.
Great buys Ninja!
MCD is at the tippy top of my shopping list for this month and I will almost certainly add to my position. I think it’s very attractively priced for the long-term investor at current levels.
KO is at the high end of fairly valued, in my opinion. I don’t think it’s overvalued. With KO, you have to remember that the risk adjusted returns are still going to be pretty solid, even at current entry levels, because of the lack of perceived risk with this equity. The market will continue to pay up for one of the most recognizable brands in the world, and that’s due to lower risk, perceived or not. This is the kind of equity you hold for decades, or forever..so the entry price isn’t quite as important as something a bit more volatile or risky.
I personally wouldn’t mind buying more KO at current prices, knowing that I’m likely to hold forever.
Mantra, holding for the long-term (i.e forever as you say) is the key isn’t it? When you buy a great business, it really isn’t an issue.
I was reviewing my Canadian holdings I’ve had for years such as RY, BNS, and RCI.B etc. They just keep powering up higher, and the dividends keep rolling in – I’ve made a very good ROI on these companies. I’m sure I will feel the same way with MCD and KO as well. In fact I’m sure I’m going to have a big smile on my face when I’m 55. 🙂
I think you should most definitely add to your position in MCD, and KO too! Be nice if you can top-up both before the ex-dividend dates at month end.
I did not realize that MacD owns most of it’s real estate. You could view the shares as a food stock but also as one of the biggest diversified real estate investments there is.
CT, that is a great way to look at MCD, never thought of it that way, but you are right. 🙂
I don’t have any US stocks for now, but plan to have to in some time, and MCD is one of the US stocks I’ll buy. Even if the actual p/b and p/s ratios based on 2011 data are fairly high.
Thanks for the great post!
What country’s stocks do you currently own?
I like MCD and KO but we only own MCD at the moment – had a brief roll-back in price but nice dividend and confident in global recovery.
Steve, the reason I like companies like KO and MCD for example, is becuase they are not as economy dependent. McDonalds and Coke will do well in any economic environment. 🙂
Great buys on both. I don’t own either one, but from a newbie investor, I’d love to buy either one of these one day. Solid companies with solid growth.
Thanks Eddie! I couldn’t have said it better. I’m pretty happy with this shopping trip. 🙂
Nicely done my friend.
I like what MoneyCone said, you can buy these companies without fear!
I’ve got a few hundred shares of KO, and hope to never sell it. I don’t own MCD, yet 🙂
MOA, Cheers! This is a great entry point for MCD. Just Sayin. 😉
Nice article. Please do share what is better option mc Donald or coc.
I like having both. 🙂 However I would probably choose MCD over KO, simply for the higher yield, and what I think is a better entry price.
Great buys and great businesses, you can’t go wrong!
Marvin, I agree. 🙂
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