Have a Coke and a Split

By Kyle Metivier - April 30, 2012 | Tickers: BBRY, KO, NKE | 0 Comments

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The Coca-Cola (NYSE: KO) Board of Directors has recommended a two-for-one stock split to be distributed August 10^th for shareholders of record on, or about July 27^th. This would be the first split the company has seen in 16 years, the 11^th in company history. It will increase the number of authorized common stock shares from 5.6 billion to 11.2 billion. Company CEO, Muhtar Kent stated the split, “…reflects our desire to share value with an ever-growing number of people and organizations around the world.” Translation: retail investors, join us. Mr. Kent also reiterated the company’s goal for doubling revenues by 2020.

What is interesting of note, the company’s largest stakeholder, you guessed it, Warren Buffett, owns close to $15 billion of the syrupy stock. What’s even mildly more interesting is that he hasn’t sold one single share of it. Buffett has stated in the past that splits potentially profit brokers by encouraging short-term investing at the expense of the business. But that was in a letter almost 20 years ago, probably even hand-written. Any reports of possible Buffett backlash with this whole stock split scenario should probably speak to the man himself, and how it pertains to the business in the year 2012. For what it’s worth, Howard Buffett, who has had a seat at the director’s table in Atlanta since 2010, and, you guessed it, is Warren’s son, voted in favor of the stock split.

I have been on both sides (reverse splits require patience and plenty of the pink stuff), and although I am not an overly-emotional enormous fan of stock splits, I have benefited in my limited experience as an investor from a few here and there. The share price gets sawed in half, as does the dividend (although the yield stays in line with the share price, Coke’s is currently 2.7%), but provided the company is a leader, has a seriously strong balance sheet, and continues to go about its business as if every competitor is gunning for them, I can’t argue against it. I have yet to come across an article that has anything bad to say about this one.

With regard to stock splits, and taking into account the brief traits mentioned above, as stated, I fondly recall my first as a stock-buying sapling, FleetBoston Financial. Not long after the split, they were acquired by Bank of America, so I thought I was a “stock genius” at the time, proudly beating my chest and giving “sage” stock advice for anyone willing to listen to someone still riding the market with training wheels. Back in those “salad days”, I used those winnings to make it rain with anyone that cared to call themselves my “friend”. I was frivolous, carefree and careless.

After consuming copious amounts of humble pie, my trading/investing skills had sharpened somewhat. I learned from mistakes and had a nice win tucked comfortably in my mattress (Ultra Petroleum). When I heard that Research in Motion (NASDAQ: BBRY), was about to offer shareholders a “too-fer” (2004), I quickly gathered as many dead presidents as I could and quietly strolled in. Fortunately, I was more responsible, and had the opportunity to collect a glorious victory and transfer those funds into a down payment for a wonderful abode in the Bluegrass State. The writing wasn’t on the wall just yet (the company had a three-for-one split in 2007), and I had a comfortable position with a fruit company in Cupertino, so I didn’t think twice about leaving the confines of a Canadian smart phone company. Spoiled Blackberries aside, RIM was a relatively “new” company, so history definitely wasn’t on their side in terms of a buy-and-hold investment. If you have any doubts, check the share price today.

Which brings us to history, strong companies consistently at the top of their game, and one of my very first investments way back when: Nike (NYSE: NKE). I enjoyed a Nike split, and I have described the Greek Goddess of Victory as one of those rare, buy-and-hold investments that you simply smile proudly at as the dividends keep buying you more shares and the growth seems to transcend Maslov’s hierarchy. Unlike RIM, I knew Nike wasn’t going anywhere, I enjoy my sports, I have experience with their products, and I marvel at their marketing genius. Over ten years of owning this investment, there is a huge green number that tells me +240%, and I’m not taking that money anywhere. Who knows, there could possibly be another split on the horizon.

So reflecting upon my experiences, something tells me this Coca-Cola split will offer investors a similar outcome in the not-too-distant future. I am going to scrounge up some funds that won’t be needed in any fashion, for many years to come. This feels like another buy-and-hold opportunity, and much like Nike, I don’t see the cooler space for Coke thinning out anytime soon. I’m setting up a long position with Coca-Cola next week. I’ll let you know ten years from now how that worked out for me.

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