Warren Buffett is one of the most successful investors in the world. His company, Berkshire Hathaway, owns a large stake in Coca-Cola. Buffett’s investment in Coca-Cola has paid off handsomely over the years.
Berkshire Hathaway acquired 400 million shares of Coca-Cola between 1988 and 1994. The company spent around $1.3 billion to buy these shares. Today, those shares are worth about $25 billion.
Coca-Cola pays a dividend of $1.94 per share each year. The company has increased its dividend for 62 years in a row. This makes Coca-Cola a reliable source of income for Berkshire Hathaway.
Berkshire’s 400 million shares generated $776 million in dividend income in 2024. This means Berkshire’s annual dividend yield on its original investment is almost 60%. Coca-Cola will likely raise its dividend again in February for the 63rd year.
This will allow Berkshire to continue profiting from the payout. Despite Coca-Cola’s success, Buffett’s team has not added more shares in over 30 years. This is likely because Coca-Cola has limited room for growth.
Buffett’s long-term dividend strategy
The company’s flagship beverage is already available in nearly every country in the world. Coca-Cola has tried to drive growth by acquiring other brands.
The company bought Minute Maid in 1960 and has since acquired over 200 brands. It has also ventured into alcohol with Topo Chico hard seltzers. However, these acquisitions have not led to rapid growth for Coca-Cola.
Since 1995, the S&P 500 has outperformed Coca-Cola by more than double. Buffett’s decision not to buy more shares seems to have been the right one. Berkshire Hathaway continues to hold its Coca-Cola shares, likely for the dividend income.
The company has over $325 billion in cash, indicating it does not see any stocks worth buying at the moment. Holding Coca-Cola for the dividend may be a better use of its capital than selling. While Coca-Cola is a well-known brand with a high dividend yield, it may not be the best investment for the average investor.
Buffett’s lack of action on the stock over the past 31 years is telling. Investors should do their own research instead of blindly following Buffett’s holdings. The Berkshire Hathaway portfolio can provide ideas for investments, but investors should let the numbers guide their decisions.
Coca-Cola’s slow growth and underperformance compared to the S&P 500 make it a less attractive option for most investors.
