If someone in your family had bought one share of Coca-Cola in 1919 at $40, the single share would be worth $102,000 in 1994 and if they had reinvested the dividends, the value to the shareholder would be over $ 2 million. That single fact is worthy of ensuring the bulk of your investments in the market is in dividend paying companies. In a book by Frederick Allen called Secret Formula – How Brilliant Marketing and Relentless Salesmanship Made Coca-Cola the Best-Known Product in the World, HarperCollins, NY, 1994. Since the book was published, the values listed in the first line have increased as the profits of Coca-Cola have increased, it is still a highly recommended stock to buy and hold.

From a corporate point of view, the history of Coca-Cola is attached to the families who owned or controlled the majority of the shares. If you live in Atlanta area, the names of Candler and Woodruff are well known. As Coca-Cola became successful, the two families became very wealthy. At first the Candler family ran the company and then came time for the next generation, none of the Candler family wanted to be President and the company was sold to the Woodruff’s and the public. The father gave the Presidency to his son, times changed and the company is now run by professional managers. The transition from family control to managerial control and how decisions are made often means companies go through less than stellar financial years. Partly because of control issues, but also because people do not want to change what has been successful in the past. Two examples at Coca-Cola involving the little bottle. Management believed consumers bought the product because of the bottle (not what is inside it). It took years and new management before the change was approved. Another example is in the 1940’s, costs were up and a desire to raise the price of the bottle from 5 cents to less than 10 cents. One solution proposed which was sent to the White House and turned down was to mint a 7 1/2 cent coin for the vending machines. At the time many bottles were sold at the vending machines, not the grocery stores as now is the case.

Linking to dividend paying stocks, if you own shares in a family controlled company you have to pay attention to the Boardroom. Every company attracts good people to it, however not all good people want to work for dysfunctional companies. If you see a heavy then normal rotation among the senior executives, the best you can hope for is a buyout of the shares or takeover. For the alternative is the President or Chairman giving little authority to people who want to do good.

There are more questions than answers, till the next time – to raising questions