Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (43965)	9/7/2011 2:46:45 PM
From: Paul Senior	1 Recommendation Read Replies (1) \| Respond to of 78520

Uh oh: stagflation. First mention by a corporation (PepsiCo) that we're in it and it's affecting consumer stocks. (First mention that I have noticed anyway.) "NEW YORK, Sept 7 (Reuters) - Developed markets like the United States are in a "stagflationary environment" that is creating hardships for consumer products makers such as PepsiCo Inc ( PEP.N), a senior company executive said..." reuters.com Beat down PEP might still be at a good buy price. I've added a few more shares to my position now. Had a few tracking shares of TAP (Molson Coors Brewing), which I've now sold at a small loss. finance.yahoo.com

To: Paul Senior who wrote (43965)	2/29/2012 4:41:57 PM
From: Brian Sullivan	Respond to of 78520

Coca-Cola's Dividend Contortions Apple's ( AAPL) oozing money. Investors are clamoring for the company to pass them a piece of dividend pie! Contrast that to Coca-Cola ( KO), the soft drink giant that recently handed out an even bigger dividend chunk, just as they've been doing for 50 years. Investors don't know it, but Coca-Cola has to go through contortions to give shareholders that bigger payout. You see, Coca-Cola doesn't make enough money here in the U.S. to cover its dividend -- not by a long shot. Now, Coca-Cola makes a ton of loot, but the cash registers are ringing elsewhere -- Europe, Asia, Latin America. Eighty percent of their business is overseas. Just a tiny portion of their operating income comes from its domestic markets. $2.3 billion (per investor relations), to be exact. Factor out 35% for Uncle Sam and you get $1.5 billion in U.S. earnings for 2011. Per investor relations: Let's stack that up. U.S. operating income about $1.5 billion. Dividends paid $4.3 billion. Coca-Cola's U.S. earnings covered just under 33% of its dividend payout! Most of Coca-Cola's earnings generated offshore. They're housed in its foreign subsidiaries and are not taxed here because Coca-Cola plans to keep them there indefinitely. The benefits are sizable: Coca-Cola pays a far lower rate on income generated offshore, likely less than 20%. The company pays an overall 24 to 25% tax rate, well under the 35% U.S. rate. Per its 10K, Coca-Cola has increased its undistributed overseas earnings held by its foreign subsidiaries to $23.5 billion from last year's $20.8 billion. For investors, it creates a problem: Those juicy earnings are founded on low tax rates, and those juicy dividends aren't sustainable without encroaching on its foreign profits. I raised this question with Coca-Cola in the past. They responded with new information in their 10K (emphasis added): We expect existing domestic cash, cash equivalents, short-term investments, cash flows from operations and the issuance of debt to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities. Coca-Cola believes it can continue to fund its dividend without using its foreign profits. In other words, the dividend shortfall has to be paid with borrowed money. Coca-Cola is borrowing billions of dollars to pay its shareholders while increasing its foreign profits by billions of euros, pesos and yen. We don't know how much cash has in the U.S. We do know that the majority of its cash and investments lie elsewhere. I'm guessing not much is in the U.S. except what comes from borrowings. As a result, the majority of our cash, cash equivalents and short-term investments are held by our foreign subsidiaries. We do not intend, nor foresee a need, to repatriate these funds. While investors beg Apple for a dividend, Coca-Cola is making moves to humble the most talented gymnast. At some point, they will likely need to repatriate those undistributed foreign earnings to cover the dividend. The domestic earnings can't do it alone. Going to the debt market will prove costly. When repatriation does occur, earnings will markedly decrease as that low 25% tax rate rises. seekingalpha.com