Why Is This Buffett Stock At All-Time Highs?

If the idea of brand could be connected to just one company, Coca Cola might well be it. One of the primary drivers behind Coca-Cola’s all-time high is its unparalleled brand loyalty. Coca-Cola has built a global brand that resonates with consumers across generations and that strong brand image has translated into steady sales and revenue growth.

The branding has also translated to dominance in the beverage market in the form of both market share and a strong competitive advantage or moat. Famously a good moat is one that capital alone cannot easily disrupt and that’s certainly been the case with Coca Cola.

Even when proven entrepreneur Richard Branson attempted to take on Coke with Virgin Cola, he failed and one primary reason was consumers unwillingness to switch to a rival. The net result is that customers purchase again and again, and that retention leads to high customer lifetime value.

But branding is just one reason Coke has surged to all-time highs. Some other reasons explain its steady climb.

Key Points

• Coca-Cola’s strong brand loyalty ensures steady sales and revenue growth, creating a competitive moat that rivals struggle to breach.
• Its extensive global presence and efficient supply chain integration enhance margins and market dominance.
• Coke’s consistent, growing dividends and ability to raise prices without losing demand maintains high operating margins.

Consumer First Focus

Some casual observers have wondered why Warren Buffett chose Coca Cola over PepsiCo. Both have their loyal fans after all. There are many reasons but one that stands out is PepsiCo does not operate its own production facilities. Coke on the other hand has franchised bottling partners and can tap into a global marketplace as a result. The supply chain integration necessarily means higher margins.

Whether you’re cruising down a highway in Chicago or rolling down a road in Tanzania, Coke has a brand presence.  But it can also cater to the unique preferences of regions. Sprite is Sprite in America but then there’s Sprite Chill and Coca Cola Zero Sugar. The globalization of the brand has translated into highly diverse revenues, a bulk of which come from outside US shores.

Steady Dividend

If there were one company that income investors can trust to keep its dividend flowing, Coke might well be it. And that’s another reason the stock has powered higher. The $1.94 dividend now translates to a yield of 2.87% but what stands out is the dividend has increased for a full 53 years.

That’s why Warren Buffett reportedly earns as much as 50% of his originally invested principal annually every year in dividends. When he first invested in Coke almost half a century ago, the yield wasn’t far off where it sits today but over that timeline the payouts have increased and so too has the share price so his returns on capital now are astronomical.

Pricing Power

On the topic of moats, a company that can keep raising prices and not see much change in demand is a rarity in the business world. Yet that’s precisely the competitive advantage Coca Cola enjoys.

While most companies have to tradeoff lower volumes against higher prices, Coke can largely manage to pass through higher pricing to consumers, which is why it can keep its operating margin so high at around 30%.

To give a counter example, a company like Meta has to be wary of turning up the advertising dial too high. Imagine logging into your facebook or instagram page and seeing only ads, the churn rate would be high among consumers. Mark Zuckerberg has to be careful to balance the volume of ads with the consumer experience.

Coke on the other hand can manage largely to hike prices and still keep customers happy. That’s an enviable moat and a reason why Coke continues to power higher after all these years.