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Monday, October 4, 2010

Not a good bathroom to do Coke in

Here's a question for the people who are smarter than me. What happened with Coca-Cola Enterprises (CCE) today? I understand they gave North American bottling operations over to Coca-Cola Co. (KO), but I guess I'm confused about how the dividend payout caused the immediate drop in the price of the stock.

In addition, my first inclination was to just leave it alone. But with CCE taking complete control of bottling operations in Europe, is it reasonable to expect that their stock will grow at a relatively predictable rate? Or maybe eastern europeans hate coke?


  1. This is really a case where the equity of the company is being converted somewhat into this dividend payout. Really big one time dividends like this don't support the stock price the same way that a sustainable, long term string of dividends do because it hurts the equity of the company by an offsetting amount. The net effect to shareholders is the same at the end of the day.

    The Millicom special dividend earlier this year didn't have quite the same effect largely because it was a much smaller portion of the company's book value.

    There's a fairly decent Seeking Alpha article on this: http://seekingalpha.com/article/25688-special-dividends-not-all-that-special

    That being said, the proper way to evaluate this going forward is not whether the company will climb back to $31 a share, but to treat it as if it is still at $31, or rather that it was at $21. Determine whether or not these changes make the stock as it was priced back on Friday more or less attractive. At first blush, this looks good for CCE, but you should not view any gains in the stock as being a "recovery".

  2. On a side note, that's a hell of a post title.

  3. I thought you'd like that.

    You've answered my question pretty exactly. I just didn't know how to ask it right proper. I guess I have to decide if it's something I want to pursue, given what I now understand better.

  4. I had exactly the same reaction as you when there was a TD Ameritrade special dividend. I nearly jumped into something I didn't understand because of it.