Coca-Cola - Berkshire Hathaway’s favorite stock.
In Brief: An investment perspective on Coca-Cola
Warren Buffett, one of the most successful investors in the world, has a long-standing investment in Coca-Cola. In fact, his company, Berkshire Hathaway has held Coca-Cola in its portfolio since the late ’80s.
Despite the rising share price of the beverage giant over the decades, Berkshire continues to collect dividends. Coca-Cola’s investment fits Buffett’s overall investment philosophy, which emphasizes long-term investments, strong fundamentals, and stable earnings.
Buffet favored Coca-Cola’s business model because it generates steady cash flows and has a broad economic moat, and also because of the company’s strong brand and global reach. He believes that investing in such companies can generate consistent returns in the long run.
Coca-Cola has raised its dividend for 61 straight years, including a 4.5% raise declared last month.
“While such a streak doesn’t guarantee the dividend, it points to the company’s commitment to maintaining and increasing its dividend during periods of inflation and other economic stressors,” wrote David Harrell, editor of Morningstar’s Dividend Investor newsletter.
Coca-Cola paid four quarterly dividends totaling $1.76/share in 2022. During the year 2022, Berkshire Hathaway held 400,000,000 shares of Coca-Cola which gives it a 9.2% stake in the beverage company, allowing it to earn $704 million in dividends from the company in the form of dividends.
Elon Musk tweeted “Berkshire Hathaway high on Coke” in response to Dividend Hero who tweeted “Warren Buffet’s Berkshire Hathaway $BRK.B received $704 million dividends from Coca-Cola $KO last year”.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Einstein
In the other words, Buffett’s total cost of buying the KO stake he had accumulated by the end of 1989 would have been recouped by the end of just over two years, based solely on the dividends that he receives today.
Compounding is one of the greatest miracles in the world when it comes to investing.
A perspective on Coca-Cola (KO:NYSE) investment
Even so, always remember that Berkshire bought its last stake in the company in 1994. Even then, the dividend could be the only reason Buffett’s team treated this stock as a hold rather than a sell.
Nevertheless, there is also a possibility of an uncertain future for that dividend.
Coca-Cola generated a free cash flow of $7.3B during the first nine months of 2022. Approximately $ 5.8B of the company’s cash flow is spent on dividends and payables, which leaves another $1.5B available to repurchase shares and invest in the company.
Currently, shares of the company are trading at $36.06 per share. Analyst consensus had rated the share as a ‘Moderate Buy’ with an average price target of $68.33 an 13.81% upside. With a high forecast of $74.00 and a low forecast of $62.00
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