Why This Buffett Stock Is a Forever Buy

Among Warren Buffett’s favorite investments is Coca-Cola, a Dividend King that has raised its dividend annually for a remarkable 62 consecutive years. This track record puts Coca-Cola in the elite club of dividend-paying stocks that have increased their dividends annually for at least 50 years.

Such consistent dividend hikes not only help investors to combat inflation but also substantially compound their returns. In fact, reinvesting Coca-Cola’s dividends over the past 40 years would have generated a total return of over 13,000%.

It’s been so lucrative that Warren Buffett reportedly earns as much as 40% annually on his original invested principal in dividends.

Key Points

• Coca-Cola is a Dividend King with 62 years of consecutive increases.
• Despite challenging economic conditions, Coca-Cola maintains a competitive 3.1% dividend yield.
• With a wide range of beverages beyond sodas, Coca-Cola has sustained growth and delivered long-term financial stability.

High Interest Rates, or Low Ones Doesn’t Matter

Coca-Cola’s dividend yield is an attractive 3.1%. While higher interest rates have momentarily increased the yields of safer investments like Treasuries and bonds, Coca-Cola’s yield remains competitive.

If rates dip, as many expect, Coca Cola’s yield will be even more competitive as the dividend is highly unlikely to be cut. Conversely, if interest rates remain elevated, Coke’s cash flow generation should make it a safe haven.

Last year, despite a 15% drop in annual free cash flow due to increased inventory resulting from higher commodity prices, the company managed to recover and increase FCF to $9.7 billion. It also continued paying a substantial dividend, totaling $8 billion.

Evergreen Business Model

While traditional soda consumption rates may be declining globally, Coca-Cola’s evergreen business model is characterized by a diverse beverage portfolio that includes fruit juices, teas, energy drinks, coffee, bottled water, and even alcoholic drinks that sustain stable growth.

The company’s adaptability is evident in its innovation within its flagship sodas, such as introducing new flavors, healthier versions, and smaller serving sizes.

Over the past couple of years, Coca-Cola reported strong growth figures, with organic sales and comparable EPS growing significantly in spite of inflation and currency headwinds.

Coca-Cola is valued at 22x forward earnings, which is comparable to its arch-rival PepsiCo. Despite the broader market volatility driven by high interest rates, Coke’s reasonable valuation and higher yield is likely to limit downside risk.

It’s this stability no matter the ups and downs of the economy that explains why Coca-Cola remains a top holding of Warren Buffett’s Berkshire Hathaway.

Refreshing Blend of Stability and Growth

The bottom line is Coke is a trusted Dividend King that is financially resilient in the face of economic booms and busts.

For those looking for a blend of stable income and perhaps modest capital appreciation, Coca-Cola remains a compelling choice.

Its diversified business model and beverage portfolio make it well-equipped to continue its legacy of success.