Why Warren Buffett Invests in Coca-Cola Stock
Warren Buffett is infamously known for drinking Coca-Cola during public appearances but there is a major reason why the Oracle of Omaha enjoys drinking the iconic American soda pop.
Buffett made a large investment in Coca Cola (KO) stock during the ’80s that has paid off handsomely for himself and Berkshire Hathaway Shareholders. Berkshire Hathaway is Coca Cola’s largest shareholder with a 9.6% stake in the beverage maker.
Buffett is a long-term investor and plans to never sell a single share of KO stock because he believes in the company so much.
Why Warren Buffett Loves Coca-Cola Stock
Here are some of the main reasons why Warren Buffett invested in KO stock:
- Warren Buffett collected soda pop bottle caps as a kid for resale and noticed that Coke bottle caps made up the bulk of his collection.
- Warren Buffett made his first investment in Coca Cola (KO) stock in 1988.
- Coca Cola is a strong American brand with an impressive product mix of sodas, bottled waters, juices, fruit drinks, sugar-free sodas, teas, and alcoholic beverages. The company sells a simple to understand product that every consumer needs. There won’t be any new technology or industry that makes drinking water or soda obsolete in the future.
- Coca Cola has raised its dividend for 60 straight years and pays Berkshire Hathaway over $700 million in annual dividend payments.
- Smart investors can allocate a portion of their portfolio to dividend growth stocks to increase dividend income as retirement approaches.
Buffet Learned About Coca Cola’s Market Dominance as a Young kid
A young Warren Buffett got his first experience with Coca Cola as a young kid growing up in Omaha, Nebraska.
According to Investor’s Podcast, Warren Buffett’s first business was buying and selling Coke.
The 7-year old Warren Buffett was in Omaha during summer in 1937. He noticed people went out of the lawn just to cool off, so he got the idea of reselling soft drinks. He headed to his grandfather’s grocery store and bought 6 bottles for a quarter, which he then resold to people outside.
He went to different gas stations. During those days, every gas station had a cooler. Inside the coolers were soft drinks. Beside the coolers were can openers. Buffett went around and collected all the bottle caps for a week, and he collected 8,000 pieces. He sorted them all out and noticed how Coca-Cola overwhelmed everything else.
Buffett then headed to his grandfather’s grocery store and got a good deal on Coke. He bought 6 bottles for a quarter. He went around to resell it to people outside – which always ended up being sold out. That was the best business he ever had at that age.
Of course, the problem was that Warren Buffett didn’t reinvest any of his profits in Coca Cola stock. Coca Cola went public in 1919 but the Young Buffett didn’t invest in the company until many years later.
Warren Buffett Owns 400 Million Shares of Coca Cola Stock Under Berkshire Hathaway
After realizing his mistake as a kid, Warren Buffett decided to own Coca Cola shares for the first time right after the 1987 stock market crash.
He purcased 28 million shares of KO stock in 1988 and 1989 at an average price of $43.81 per share ($2.73 split-adjusted). KO shares were trading at a P/E ratio of 15 during his purchase period, which means Buffett paid a fair price and didn’t buy them at bargain basement prices.
Coca Cola stock has split a few times since Buffett’s original purchase and he now owns 400 million shares (
Why Buffett Invests in Companies with Strong Brands
It’s easy to see why KO stock was so attractive to Warren Buffett in his later years. The company originally started out selling the iconic Coca Cola sugary soft drink but now sells many different beverages to serve different types of customers.
People will always drink beverages so Coca Cola’s revenue & profits are immune to future changes in the global economy or technology. You won’t stop drinking water or tea because the economy sucks.
What’s happen if inflation shrinks Coca Cola’s profit margins? The company can raise prices to stay afloat because many Coca Cola drinkers have been consuming its brands since they were a kid. Coca Cola’s brand loyalty is extremely strong and ranks up there with companies such as Nike, Apple, and Tesla.
Most American recognize the Coca Cola brand instantly plus the company has expanded its sales internationally by a large margin since Buffett bought KO stock 34 years ago.
Coca Cola is an everyday drink in many foreign countries such as The Philippines where many residents have blacklisted Pepsi due to a messy scandal back in the 90’s.
Coca Colka has kept its brand and image fairly clean over the years and that’s why the company continues to churn out steady profits and rising dividend payments.
Warren Buffett Receives $700 Million per Year in Coca Cola Stock Dividends
Buffett’s original $1 billion Coca Cola stock investment has grown into $22 billion in today’s market value. But what’s most impressive is how much annual dividend income Berkshire Hathaway receives from KO dividends.
Buffett earns a whopping $700+ million in dividend payments annually by owning 400 million shares of Coca Cola stock. That’s an outstanding 70% annual yield on his original investment.
Dividend growth investing is one of the best ways to get rich slowly even though it’s not a popular investment strategy. Coca Cola has a 5% 10-year dividend CAGR, which allowed Buffett to increase his dividend come slowly over time regardless of what’s going on in the broader economy.
Take a look at the chart below to see how Coca Cola’s slow but steady dividend raises made Buffett and Berkshire Hathaway a fortune.
Conclusion
Smart investors pay attention to what Warren Buffett is doing because he is one of the best investors of all-time. You can copy Buffett’s success by investing in companies with rising dividends that will be around for the next 10 to 20 years.
