(04-30-2015, 06:04 PM)stewardinlife Wrote: I checked KO and the P/E is over 25 currently -- So would you say it is okay to pass on purchasing KO presently, and invest in other ones. And maybe once KO's P/E does below 20, consider purchasing?
Paul,
20x earnings is very popular with dividend growth investors but it's still just a guideline. At the end of the day you still need to trade according to principals that you're comfortable with.
Like Llewys + I said above, there's a large handful of companies, maybe 20 or 25, that whenever I buy I'm completely looking forward to holding onto them forever, and I recognize that today's Price and today's Earnings are totally transitory. Paying 22X or 24X for today's earnings becomes pretty irrelevant when I'm still holding the company 10 years later and I actually ended up paying 5X future earnings.
It's not like we're investing in Little Mikey's Lemonade Stand here. These are historical, battle worn companies that know how to survive, how to make a profit, how to reduce share count, how to reward long term investors with yearly dividend raises.
KO, from your example, is going to be around in 50 years from now. You can hitch a ride at today's P/E or next years, or the year after that, it's probably not going to make that much of a difference. But if you jump on KO today, it's pretty much set in stone that your dividends received are going to be about 17% higher than they would be if you wait two years.
That said, if you look around there's *always* going to be quality companies currently priced at 20X or below.
To name a few: ROK, BAX, UNP, BA, GE, DOW, DEO, PM, JNJ, LMT, PH, QCOM, UTX, NSC, TUP, HRS, AAPL, RTN, CALM, GPS, WFC, BNS, ACE, XOM, CVX, STX, BBL, ARLP