Coca-Cola In The Great Depression

by The Compound Investor

It’s a sign of the times we find ourselves in that the most common search terms currently bringing folks to the site are nearly all related to the 1930s. Typically, these new readers want to know two things. Firstly, which stocks held up best during the Great Depression? Secondly, which stocks then went on to rebound the most when it was done?

Fortunately, I have a handy book on the subject that may help to answer. In fact, we probably don’t even need the book in order to answer the latter question. The stocks that rebound the most are typically cyclical names that get hid hardest on the way down. In terms of the current crisis, that probably means looking at airline stocks, hotel stocks, restaurant stocks, energy stocks and so on (just off the top of my head).

The first question strikes me as the more interesting one. Of the plethora of names the book has data on, it is surprising just how many of them actually still exist today. Dow Chemical, Procter & Gamble, Colgate Palmolive, Union Pacific, Shell Oil, Canadian Pacific Railway, Caterpillar Tractor Company and a few others jump off the page right away. That said, there is one name that stands out in particular: The Coca-Cola Company (KO).

The Coca-Cola Company

A few points in particular made me go for Coca-Cola. Firstly, the strong health of its balance sheet in the early 1930s. As it entered the crisis, the company had zero debt and around $7,000,000 in cash on its balance sheet. In fact, it ended 1933, the worst year of the Depression, with zero debt as well. It still maintained a cash balance of around $4,000,000 that year.

Secondly, its profitability remained solid. In every single year of the Depression the company reported positive net income. In 1933, for instance, the company earned just under $9,000,000 in after-tax profit. Although this was lower than what the company had made in 1929, it still covered its dividend payout with a couple million dollars to spare. Coca-Cola was earning north of $20,000,000 per annum by the end of the Depression in circa 1937.

The final point I would highlight is the dividend situation. Famously, the company never missed a payout. Indeed, by 1933 it had actually increased its per-share payout to common stockholders by 50% relative to 1929, although I note that its 1933 payout was actually 25% below its 1931 level. Anyway, its dividend distribution had ample profit cover throughout the Depression years. Quick math shows that the company paid out an average of 62% of its net profit between 1929 and 1933.


On the face of it, some elements of the company’s financial performance might not look all that good. After all, net profit did fall in the early 1930s by as much as 25%. The per-share cash dividend followed a similar trend, though it remained higher than it had been in the late 1920s. When viewed in isolation, I guess that is a fair point.

That said, these figures are not as bad as they look given the rampant deflation of the time. I mean, we aren’t talking a couple of percentage points here or there. The rate of deflation came in at something like 10% in 1932 alone. By the end of 1933, cumulative deflation had totaled somewhere in the region of 25% relative to the late 1920s. Or put another way, Coca-Cola’s per-share dividend payouts did not actually change much in real terms over that four-year period. Its net income also held up well in inflation-adjusted terms.

After that, it was back to the high growth rates of the 1920s. When you add it all up, the company had earned somewhere in the region of $115,000,000 between 1930 and 1937. For those reasons, I’d make Coca-Cola Company stock my number one choice.


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