Warren Buffett & Coca-Cola
It is no secret that Warren Buffett has long been a fan of Coca-Cola stock. He first began purchasing the stock in 1988. Twenty-seven years later, Coca-Cola is Warren Buffett’s 2nd largest holding. The stock currently makes up 14.7% of his portfolio.
Coca-Cola is the type of business Warren Buffett discusses. The Warren Buffett quotes below most definitely apply to Coca-Cola:
“I don’t look for 7-foot bars: I look around for 1-foot bars that I can step over”
This quote means Warren Buffett looks for easy-to-understand investments. There’s few businesses with a simpler business model than Coca-Cola.
“Our approach is very much profiting from lack of change rather than from change”
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The Coca-Cola Co (NYSE:KO) was founded in 1892. Its flagship product has changed very little sense that time. The biggest change came just 11 years after the soda was introduced; Coca-Cola removed the cocaine from its sodas in 1903. There are very few products that change as slowly as Coca-Cola, and very few industries that change as slowly as the beverage industry.
“Time is the friend of the wonderful company, the enemy of the mediocre”
Coca-Cola has grown rapidly over the last 123 years. The company now has a market cap of over $170 billion. For Coca-Cola, time truly has been its friend.
Coca-Cola stock is almost tailor made for Warren Buffett. It combines his love for a strong and durable competitive advantage with his desire for businesses that change very slowly and are easy to understand. As a bonus, Coca-Cola has a healthy 3.4% dividend yield. Click here to see Warren Buffett’s 20 highest yielding dividend stocks.
Dividend & Growth Analysis
Over the last decade, Coca-Cola has compounded its earnings-per-share at 7.2% a year.
While acceptable, this is at the tail end of management’s long-term expected earnings-per-share growth rate. Going forward, Coca-Cola expects to grow its earnings-per-share at between 7% and 9% a year.
The company plans to accomplish this growth through becoming even more capital efficient. Coca-Cola is strengthening its relationships with its bottlers. The company recently announced that its European bottlers were merging into a single, larger company. This will result in cost synergies and higher margins for Coca-Cola. Coca-Cola has similar agreements in place in Africa and Indonesia as well.
On the dividend front, Coca-Cola is very shareholder friendly. The company has paid increasing dividends for an amazing 53 consecutive years. With over 50 years of consecutive dividend increases, Coca-Cola is one of just 16 Dividend Kings – dividend stocks with 50+ years of consecutive dividend increases.
Currently, Coca-Cola offers investors a dividend yield of 3.4%.
This is historically a very high yield for Coca-Cola stock. The image below shows Coca-Cola’s dividend history over the last 20 years:
