Coca-Cola Stock is Warren Buffett’s Longest-Held Stock. Here’s Why

Coca-Cola (KO) is considered one of Warren Buffett’s most favourite stocks and it is his longest-held stock. In 1988, his holding company, Berkshire Hathaway, bought shares of Coca Cola stock and now it owns 400 million shares.

Investing in businesses not stocks

Buffett has praised Coca-Cola, Apple and American Express for creating their own unique brand, standing out in their industries, and exhibiting strong leadership.

For him, what is important is to invest in a good business rather than the stock and avoid focusing on the market. Businesses is what matters, that is why he invested in Coca Cola as it is a great business with unparalleled reputation. Its popularity around the world and the fact that it’s doing business in more than 180 countries, places it in a superb position.

It is after all thepreferred soft drink. And this global acceptance and use has equated to high sales and its survival, as well as great performance, throughout the years.

Where does Coca-Cola stand today?

With $46 billion in trailing-12-month revenue, Coca-Cola remains the biggest beverage company in the world. Despite increasing its prices on various products, its customers have remained loyal to it. Coca-Cola’s strong relationships with customers translates into reliable sales, providing it with strength and competitive edge that its competitors may lack.

To boost its strength and reliability, and to keep up with the times, management has made some changes including removing half of its brands, which are around 200 in total. These brands are mostly local and only accounted for less than 2% of volume and 1% of revenue. By getting rid of them, management is hoping to refocus its resources on brands that are better performing and more profitable.

And this is what makes Coca Cola strong and reliable for Buffett, as the stronger a company is in terms of its global presence, the harder it is to overthrow. So, if Coca-Cola focuses on its bigger and more successful brands, the stronger it will become. 

Why traders go for Coca Cola?

The popular soda maker is considered a great evergreen investment. It is a safe blue chip stock, it holds the world’s top soda brand, generates money, and pays consistent dividends. On the other hand, in the past 12 months, its stock dropped 3% as the potential of rate cuts pushed investors toward higher-growth stocks than Coca-Cola. At the same time, analysts believe Coca-Cola’s stock remains a good buy for several reasons.

1. Dividend King

Coca-Cola’s annual dividend has increased for 62 years in a row. This places Coca Cola in the Dividend Kings’ list which is the most elite group of dividend-paying stocks which have increased their dividends every year for at least 50 consecutive years. Out of more than 4,000 public companies in the US, only 54 were included in the list in 2024, including five new dividend kings: Archer Daniels Midland (ADM), Fortis (FTS), Kenvue (KVUE), RPM International (RPM), and United Bankshares (UBSI).

What this means for Coca Cola is that its annual dividend increases will help investors keep ahead of inflation while increasing their returns. For example, if an investor reinvested Coca-Cola’s dividends back over the past 40 years, they would have generated a total return of 13,340%.

2. Attractive yield as interest rates drop

Coca Cola currently offers a fairly good forward dividend yield of 3. 1% but increases in costs have favoured the rise in the yields of CDs, T-bills and bonds to values greater than 5%. This is an unfavourable environment for income investors who are probably opting to hold on to those safer fixed income investments than buying stock in Coca-Cola which is comparatively riskier and yields less.

As things stand, higher than expected inflation rate figures have dialled back expectations for rate cuts. However, in the long run the yields on the stocks of Coca Cola should be more attractive given the fact that interest rates will again drop.

3. Higher interest rates make KO a safe haven stock

On the other hand, if interest rates remain higher for longer than estimated, then the Coca-Cola stock could once again be a safe bet. Under a high interest rate regime, businesses most likely to be favoured include cash-generating businesses like Coca Cola rather than unprofitable and speculative ones.

4. Coca-Cola use an evergreen business model

Coca-Cola might look like a risky investment as consumption of sodas is on the decline globally, but Coca-Cola is not only a carbonated soft drinks producer. They also serve fruit juices, teas, energy drinks, coffee, bottled water and alcoholic beverages. It has also been reforming its flagship sodas with new flavours and different kind of healthier products and adjustable sizes.

Thus, diversification has helped Coca-Cola to document stable growth. For example, despite inflation and currency weakness in 2022, Coca Cola still managed to deliver an organic sales growth of 16% and a comparable EPS increase of 7%.

Coca-Cola has recorded a 12% growth in organic sales and 8% in the comparable EPS in 2023. For 2024 the company forecasted its organic sales to increase between 8%-9% while its comparable EPS is to increase between 4%-5%.

5. Coca-Cola Reasonably valued

Coca-Cola currently fetches a forward P/E of 22, which means it is currently 22 times its expected earnings for the subsequent year. Pepsi Co carries a slightly similar valuation while Dr. Pepper is a bit cheaper with a forward P/E of 18. Nevertheless, the forward dividend yield of Coca Cola is still comparatively higher than those of its competitors PepsiCo with 2.9% and Keurig Dr. Pepper with 2.6%.

Coca-Cola’s reasonable valuation and higher yield should limit its downside. It is not going to rocket to fame anytime soon but is considered a good place to place your money when macro events such as interest rate increases and geopolitical tensions cause volatility in the markets. This is perhaps why KO is a staple of Buffett’s Berkshire portfolio.

Trade Coca Cola with IronFX

To get into KO shares with Contracts for Difference, you can familiarise yourself with the stock market by accessing online resources and signing up with a reliable broker. IronFX has years of experience in trading CFDs and provides exceptional educational resources. If you would like to learn more about trading opportunities and CFDs, please head over to IronFX’s website where you can explore articles and the broker’s wide variety of services.

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