Coca-Cola's Dividend King Shares Constitute 8.5% of Warren Buffett's Investment Portfolio. Is It Worth Including in Yours?
Billionaire investor Warren Buffett recently unveiled the latest Berkshire Hathaway 13F filing, which included some noteworthy moves, such as purchasing shares of Domino's Pizza and Pool Corporation. There were a few additions and sales to the portfolio as well.
Buffett's affection for and commitment to Coca-Cola (KO -1.13%) remain unwavering, a bond that has persisted for over 30 years. He rarely misses an opportunity to sing its praises and advocate for it as a lucrative business and investment option.
With the updated Berkshire Hathaway equity portfolio, Coca-Cola now accounts for 8.5% of the total. Buffett owns 9.3% of all outstanding shares, with a value of $24.7 billion.
Is it worth incorporating into your portfolio as well?
Emblematic of the Buffett investing ethos
Buffett is a firm believer in Coca-Cola's potential, and its characteristics align with his investing philosophy. In his 2022 annual shareholder letter, he explained why. He cited it as an established company that has repeatedly attempted to branch into new industries, only to experience setbacks and mismanagement at certain points. Yet, like his favorite stock, American Express, it has managed to thrive within its core business and become a globally recognized brand.
Buffett views himself as a business evaluator rather than a stock picker, focusing on the company's fundamental strengths rather than its stock performance.
A dedicated dividend payer
Beyond its business merits, Coca-Cola is a dividend powerhouse. In his annual shareholder letter, Buffett emphasized the importance of dividends in Berkshire Hathaway's outperformance on the market. He attributed this achievement, in part, to his purchase of Coca-Cola stock in 1994. This decision has since generated substantial annual dividends for Berkshire Hathaway, which it subsequently reinvests back into the company - $704 million in 2022 alone.
Coca-Cola's commitment to dividends is unwavering. For the past 62 years, it has increased its dividend annualy under various circumstances, establishing itself as a top dividend king with a robust track record. Currently, Coca-Cola's dividend yields 3.1%, with an average yield of approximately 3% over time.
Its business model has proven to be incredibly successful, leveraging its core brands to generate substantial income. About 75% of this income is paid out to shareholders as dividends, while the remaining 25% is allocated to funding operations and expansion initiatives.
The current state of Coca-Cola
Coca-Cola is the largest beverage company globally, with $46 billion in trailing-12-month revenue. Despite its dominance, Coca-Cola has not been immune to global trends and economic challenges.
Coca-Cola stock has underperformed the market for much of the time Buffett has owned it, although it has experienced periods of growth. Despite a 1% revenue decline from the previous year in Q3 2024, organic revenue, derived from existing brands, rose 9%. Operating margin narrowed from 27.4% in 2023 to 21.2% in Q3 2024, whereas comparable operating margin expanded from 29.7% to 30.7%. Earnings per share (EPS) decreased by 7% to $0.66.
The company has adopted a proactive approach to tackle rising costs by implementing price increases and experimenting with various product sizes and packaging options.
Despite the challenges, growth opportunities still exist. Organic growth within the industry is expected to increase at a mid-single-digit pace annually over the next few years, and Coca-Cola is seeking to capture market share through targeted marketing campaigns, digital programs, and innovative beverage offerings.
Not Every Investor is Buffett
Buffett manages a holding company, and Coca-Cola's dividends serve as a steady source of revenue that allows him to allocate resources to other investments within the company. Individual investors have different objectives, and investing in underperforming markets generally is not one of them.
However, there are compelling reasons to consider purchasing Coca-Cola stock. It offers a high level of portfolio stability during market volatility and provides passive income investors with a steady income stream in the form of quarterly dividends.
Although it may not be an appropriate primary or substantial holding, particularly for investors with high risk tolerances and a long-term investment horizon, every portfolio could potentially benefit from stable, ballast-like stocks like Coca-Cola.
Given Buffett's continuous support for Coca-Cola and its dividend payouts, one might consider investing in this stock for its financial stability during market volatility and as a source of passive income through quarterly dividends. In fact, Coca-Cola's unwavering dividend increases for over 62 years have cemented its position as a top dividend king.
In light of Warren Buffett's portfolio diversification strategy, it's worth noting that investing in Coca-Cola could provide a steady revenue source, allowing for further allocation into other potential investments. This approach aligns with Buffett's philosophy of focusing on a company's fundamental strengths rather than short-term stock performance.
