Billionaire investor Warren Buffett just released the latest Berkshire Hathaway13F filing, and there were some surprises, such as purchases of Domino's Pizza and Pool Corporation stocks. There were a few other additions and sales.
One thing that hasn't changed, and hasn't changed in 30 years, is Buffett's position in and love of Coca-Cola (NYSE: KO). He almost never misses an opportunity to talk about why it's a great business and stock to own.
With the new composition of the Berkshire Hathaway equity portfolio, Coca-Cola now accounts for 8.5% of the total. Buffett owns 9.3% of all outstanding shares, worth $24.7 billion.
Should it be in your portfolio, too?
The classic Buffett stock
Buffett often sings Coca-Cola's praises, and it exemplifies the Buffett stock paradigm. In last year's annual shareholder's letter, he explained why. He said that it was an old, well-established company, and over the years, it had tried unsuccessfully to break into new business and was even mismanaged at certain points. But he compared it to his other favorite stock, American Express:
Each was hugely successful in its base business, reshaped here and there as conditions called for. And, crucially, their products 'traveled.' Both Coke and AMEX became recognizable names worldwide as did their core products, and the consumption of liquids and the need for unquestioned financial trust are timeless essentials of our world.
That's why Buffett calls himself a business picker rather than a stock picker. He is looking at the business fundamentals, not where the stock was on Tuesday.
The classic dividend king
There's more than that, though. Buffett is a big fan of dividends. In the previous annual shareholder's letter, he said that Berkshire Hathaway's market-beating results were due to a few smart decisions, and one of them was buying Coca-Cola stock in 1994. The reason that was so smart is because Berkshire Hathaway gets millions of dollar in annual dividends that it recycles back into the company -- $704 million in 2022.
Coca-Cola has paid and raised its dividend annually for the past 62 years under every type of circumstance, making it a top dividend king with one of the longest track records on the market. Coca-Cola's dividend yields 3.1% at the current price, and it yields around 3% on average.
It has an incredibly successful operating model that leverages its core brands to bring in tons of cash and income, about 75% of which it pays out to shareholders as dividends. It keeps the remaining 25% or so to fund operations, including introducing new beverages and making acquisitions.
Where Coca-Cola is today
Coca-Cola is the largest beverage company in the world, with $46 billion in trailing-12-month revenue. That's the kind of brand power Buffett is talking about. However, that doesn't mean it's immune to global trends and macroeconomic headwinds.
Coca-Cola stock has underperformed the market for most of the time Buffett has owned it, and although it's had some good times, it's under pressure right now. Revenue declined 1% from last year in the 2024 third quarter, although organic revenue, which is revenue from existing brands, was up 9%. Operating margin narrowed from 27.4% last year to 21.2% this year in the quarter, although comparable operating margin expanded a drop from 29.7% to 30.7%. Earnings per share (EPS) were down 7% to $0.66.
The company has countered higher costs with a number of initiatives. It has raised its own prices, which can only go so far, and it has experimented with different sizes and packaging to entice loyal customers who are sensitive to price hikes.
Good times are still coming. Coca-Cola enjoys organic growth as the industry expanded, and its categories are expected to expand by mid-single digits annually over the next few years. It's also trying to capture market share through marketing campaigns, digital programs, and beverage innovation. Even with its wide brand presence, it has plenty of new areas to conquer.
You are not Buffett
Buffett runs a holding company, and Coke's dividend provides a cash infusion that allows him and his team to invest in other areas of the company. Individual investors have different goals, and buying market underperformers isn't usually one of them.
However, there are reasons you might consider buying Coca-Cola stock. It can provide incredible stability for a diversified portfolio and security when the market is volatile. Retirees and other passive income investors can rely on it cutting a check every quarter.
You may not want to make Coca-Cola stock a primary or large holding, especially if you have an appetite for risk and a long time horizon. But every portfolio could benefit from strong ballast stocks like Coca-Cola.
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American Express is an advertising partner of Motley Fool Money. Jennifer Saibil has positions in American Express. The Motley Fool has positions in and recommends Berkshire Hathaway and Domino's Pizza. The Motley Fool has a disclosure policy.
