Coca-Cola Amatil’s dividend yield appeals as shares approach low

On May 7 at Coca-Cola Amatil’s (ASX: CCL) Annual General Meeting, long-serving and highly regarded CEO Terry Davis delivered a Trading Update that provided guidance for 2013 earnings before interest and tax to be flat year on year. Analysts and investors, who were used to consistent growth from the company, headed for the exits, sending the share price down from $15 pre-announcement to a 52-week low of $12.55 post-announcement.

After an initial bounce off of the lows, Coca-Cola Amatil’s shares are once again approaching their 52-week low. The shares are now providing a dividend yield of nearly 4.5%, which is in line with the market average yield. As arguably the best known brand in the world, Coke has a significant entrenched position in the carbonated beverage industry. Investors such as Warren Buffett refer to this advantage as a “moat”.

Although there are differences, as explained here, between the business models of parent company The Coca-Cola Company (NYSE: KO) and the Australian-based bottling arm Coca-Cola Amatil, Coca-Cola Amatil’s business is still very appealing. First, the company is exposed to a robust Australian economy with the potential to take significant market share as it expands into alcoholic beverages. Secondly, its exposure to Indonesia with its population of 242 million people provides significant volume growth potential as well.

Owning branded fast moving consumer goods (FMCG) and branded food and beverage manufacturers has often been a profitable way to grow your wealth. Finding brands before they are household names can be even better! For investors looking for domestic options in this space, a closer look at food and beverage producers Bega Cheese (ASX: BGA), Freedom Foods (ASX: FNP) and Patties Foods (ASX: PFL), and FMCG manufacturer Ansell (ASX: ANN) could be worth their while.

Foolish takeaway

For investors with a long-term time horizon, the next few months could offer an opportunity to purchase Coca-Cola Amatil, which is a high quality company and has a solid 4.5% yield, at a reasonable price.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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