Wednesday, October 23, 2013

Dividend Compass Match 9 - Coca Cola vs TIm Horton's

The Dividend Compass Cup moves to the Elite Eight (Equity Eight?) round. The first match in this round is Coca Cola versus Tim Horton's.

The Dividend Compass Cup rules are straightforward, we run the two quality, wide moat companies through the Dividend Compass to analyze which is the more interesting investing candidate. Todd Wenning's Dividend Compass scores them 1-5.

Let's get this started and revisit Coca Cola's metrics:
The FCF cover is good but could be better. The margins and ROE are solid. Unlike some of the blue chips in the Dividend Compass, Coca Cola's sales growth remains in tact. Unfortunately, its dividend growth is only mild.

Coca Cola score:

This results in a steady, workhorse-like 4.19 five year average. Its easy to see why Buffett says to think about Coca Cola as owning a bond.

TIm Horton's has a stellar set of metrics, lower debt than Coca Cola. Much better dividend growth and coverage (albeit off a much lower base).

Tim Horton's metrics:

Those numbers are hotter than a cup of Tim Horton's coffee and they are good for a near perfect 4.95 five year average from the Dividend Compass.

Tim Horton's score:

Coca Cola has the higher yield, but Tim Horton's has the higher score from Dividend Compass (~20% better on five year average) and that's good enough to get Tim Horton's through to the Final Four where they will face the winner of Microsoft and Procter and Gamble.

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