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The Coca-Cola Millionaires: Or, How Dividends Can Change Your Life
"There aren't records of how many widows and orphans the Coke stock helped out, but that silly old investment made a huge difference."
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Warren Buffett might have some competition as Coca-Cola’s all-time #1 fan.
And, considering he drinks five cans of Cherry Coke every day and owns 400 million shares of the company, that’s really saying something.
But top spot will probably always belong to Mark “Pat” Munroe — and the lucky residents of Quincy, Florida.
More than one hundred years ago, this banker-turned-Coke-evangelist harangued and pleaded with his fellow townspeople to invest in the fledgling soft drink outfit.
Many of them listened and ended up as millionaires — living off Coca-Cola dividends and, thus, escaping the worst of the Great Depression and subsequent economic downturns.
A word of warning: Because this all happened so long ago, some of the finer points can get a little sketchy. Lots of contradictions with dates and details.
But none of these discrepancies can obscure one overriding, indisputable fact — thanks to the foresight and efforts of one man, a nondescript rural town in Florida became home to the Coca-Cola millionaires.
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Right off the bat, we’re not even entirely sure when this story began.
Some accounts claim that Munroe, as a friend of Coca-Cola chairman W.C. Bradley, started hawking shares shortly after the company went public in 1919.
Other stories, though, hint at a later date. According to those, Munroe grew impressed with KO 0.00%↑ after witnessing firsthand its staying power during the Great Depression (which came a decade after the company's IPO).
He noticed that, no matter how dire their financial situations, even Quincy’s poorest tobacco farmers would shell out their last nickels for a bottle of Coke.
So, which version to believe?
Perhaps there’s a little truth on both sides — with Munroe intensely interested in Coca-Cola stock from the very beginning (as some quotes from his daughter would indicate), but then accelerating his devotion after the company proved especially resilient during the depression.
Anyways, let’s focus on the big picture here and not get waylaid by a lot of little nitpicks. Because the lessons from this story far outweigh any hazy details.
Munroe worked as the town banker in Quincy and didn’t believe in hoarding his best investment ideas away from family and friends.
And, whether it was 1919 or the early 1930s, no one denies that he tirelessly tried to convince everyone he knew to invest their income and savings into Coca-Cola stock.
Whenever the town’s tobacco farmers brought in a bumper crop and had a little extra money to spend — and even when they didn’t — Munroe was there to sing the praises of Coke.
And, often, he refused to take no for an answer.
Once, a local farmer went to see Munroe at the bank about a $2,000 loan that he needed to keep his farm afloat. But Munroe would only agree to lend him $4,000 — the $2,000 originally requested and $2,000 to buy shares of Coca-Cola stock.
“Coke had just come public and Daddy liked the taste,” said Julia Woodward, Munroe’s daughter, in 1996. “Plus, he figured the stock would be good collateral because folks would always have a nickel to buy a bottle.”
Coca-Cola went public in 1919 at $40 per share — and, almost immediately, hit a bump in the road.
They had a problem with the bottlers because of some contractual arrangements. They had made a bad deal back in 1889 in terms of the original bottling contract — and sugar prices had shot up after World War I and there were various problems. (Warren Buffett)
KO 0.00%↑ fell to $19 by 1921 and, at that point, actually traded for less money than it had in the bank. The company's forward p/e clocked in at a minuscule 1.7 with a dividend yield north of 5% and a $9.5 million market cap.
Considering the growth that Coca-Cola was about to experience, the stock was practically being given away.
No wonder Munroe was so pumped.
Thankfully, many Quincy residents heeded the call from their trusted town banker and purchased Coca-Cola stock at these cut-rate prices. And they all profited off of the company’s one-way rocket ride to generational wealth.
Soon after, Coca-Cola’s share price started to rise, the dividends rolled in, and an entire community’s economic outlook changed for the better.
These suddenly-flush investors, most of whom had been poor farmers up until a minute ago, quickly realized that the stability and growth of Coke’s dividends — quarter after quarter — all but eliminated their once-constant worry over being ruined by a bad crop or unpredictable weather.
Especially during the Great Depression, when workers around the country were losing their jobs right and left, those Coca-Cola dividends kept arriving like clockwork.
“Sometimes it didn’t pay the biggest dividend,” said Woodward, “but it was a security in the middle of a life that was uncertain.”
Over the years, thanks to stock splits and reinvested dividends, the value of Quincy’s Coca-Cola holdings soared. The Dividend Growth Investor did the math on what one share of KO 0.00%↑ — purchased in 1919 — would now be worth:
Those $40 invested in 1919 turned into a little over $21 million a century later with dividend reinvestment. This investment would be paying almost $600,000 in annual dividend income.
And that’s just for one share. With the way Munroe was pushing Coke stock back then, most Quincy investors bought a whole lot more than that.
Germany’s Der Spiegel, of all places, found one unlucky Quincy family that spurned Munroe’s advice and missed out on millionaires. Jeff Sullivan recounted the story of his great-uncle, who told Munroe that Coca-Cola stock would be of no use to him, and now “the whole family laughs at him”.
Woodward also spoke to the Der Spiegel reporter — possibly on her Coke bottle-shaped telephone — and explained the enduring power of her father’s faith in the Atlanta-based soft drink company: “Coca-Cola raised me, my children, my grandchildren, and my great-grandchildren.”
So, is the moral of this story to YOLO all of your money into one stock?
A lack of diversification pays off when the company in question turns out to be one of America’s greatest success stories (and a Dividend King), but I wouldn’t want to bet on that happening again.
I prefer to take these two lessons, instead.
(1) The power — and security — of dividends
Like many of Quincy’s Coca-Cola millionaires, Julia Woodward never sold her family’s KO 0.00%↑ shares and continued to live on the ever-increasing dividends for her entire life.
One of my favorite things about dividends is that, with cash regularly rolling in, investors can mostly ignore the daily fluctuations of the stock market.
What does it matter if Coca-Cola goes up 2% or drops 5% when the quarterly dividends always arrive on time and increase every year?
Dividends also offer investors the option to either reinvest the cash in more shares (super-charging the compounding process) or use it for day-to-day life or other special expenses.
Yet, the Coke millionaires came to the rescue, paying the tuition to send local students to college, for instance, and buying Christmas presents for the disadvantaged.
“There aren’t records of how many widows and orphans the Coke stock helped out,” Woodward said. “But that silly old investment made a huge difference.”
(2) Buy and hold!
This may not be the flashiest investment strategy, but it’s definitely a winning one. Especially when you own pieces of blue-chip companies like Coca-Cola.
For more on my love of buy-and-hold investing, check out these past articles:
The formerly-poor farmers of Quincy, Florida, no doubt had many opportunities to sell their shares of Coca-Cola over the past hundred years, but they (and their descendants) kept their heads down, stayed the course, and ended up rich beyond their wildest dreams.
And those who didn’t learned a sharp lesson.
“Some people have sold shares to buy a car,” said Woodward. “But then a couple years later they realized they sold stock worth half a million dollars for a Cadillac.”
“No one would dream of selling — or of letting their heirs sell,” said W.C. “Bud” Branson, president of Quincy State Bank, in 1988. “They put it in their wills. They say, ‘You can sell anything else, but not the Coca-Cola stock. It’s been too good to us.’”
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Disclosure: This is not financial advice. I am not a financial advisor. Do your own research before making any investment decisions.