Warren Buffett is one of the better-known and successful investors. His Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) portfolio has consistently outperformed the S&P 500 (SNPINDEX: ^GSPC) since its inception in the mid-1960s. So respected is his reputation that some investors will assume a stock belongs on a buy list simply because Berkshire owns shares.
That may not be the case with Coca-Cola (NYSE: KO). Despite being a long-held position of Berkshire and a globally known iconic brand, the company’s growth track and financials indicate it is not likely to serve new investors as well as it did Buffett and his team. Here’s why.
Berkshire Hathaway acquired 400 million Coca-Cola shares in various lots between 1988 and 1994. By any measure, Buffett’s investment instincts have paid off for Berkshire. The investment holding company spent around $1.3 billion to acquire its shares. After over 30 years of appreciation, those shares are now worth around $25 billion.
However, that is not the extent of Berkshire’s returns. The company pays $1.94 per share in annual dividends, and because these increases have occurred for 62 straight years, the payout has become a lucrative cash source for Buffett’s company.
New shareholders would earn a dividend yield of about 3.1% on shares purchased today, far above the S&P 500’s 1.25% current average.
Still, Berkshire’s long-term ownership brings a significantly higher return. Its 400 million shares generated $776 million in dividend income in 2024. Thus, its annual dividend yield on cost averages almost 60% of its initial investment cost! Moreover, Coca-Cola will likely hike the payout for a 63rd year in February to maintain its Dividend King status, meaning Berkshire should continue to profit handsomely from the payout.
Still, rather than focusing on following Buffett, investors should ask the more pertinent question of why his team has not added shares in over 30 years.
That likely comes down to the company’s growth prospects. Its flagship beverage is in the enviable position of being available in nearly every country in the world. Unfortunately for the company, this leaves little room for additional significant growth for Coca-Cola. Hence, it drives most of its expansion through the acquisition of other brands.
To its credit, it saw this early and acquired its first brand, Minute Maid, in 1960. Coca-Cola has gone on to purchase over 200 brands and has also ventured into alcohol with its Topo Chico hard seltzers.
