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This Buffett-Favored Stock Has Hiked Its Dividend for 56 Years

This Buffett-Favored Stock Has Hiked Its Dividend for 56 Years

Thursday, 23 August 2018 02:16 PM Current | Bio | Archive

Every quarter, large institutional investors report 13F filings with the Securities and Exchange Commission, to update financial regulators on any changes to their investment portfolios.

One of the most highly-anticipated 13F filings each quarter comes from Warren Buffett’s Berkshire Hathaway (BRK.B). Berkshire’s 13F filings provides investors with an inside look into the investments held by one of the most legendary investors of all time.

The Coca-Cola Company (KO) is one of Berkshire’s top 5 publicly-held stock investments. Berkshire owns nearly 10% of the company. It is easy to see why—Coca-Cola has one of the strongest consumer brands in the world. The company generates consistent profits each year, even during recessions, and has increased its dividend for 56 years in a row. With a hefty 3.4% dividend yield, Coca-Cola is a high-conviction Buffett stock.

Focusing on the Future

Coca-Cola’s long history of annual dividend increases is due to the company’s strong business model. Buffett’s investment philosophy involves buying shares of companies that have wide economic “moats”, or durable competitive advantages that prevent competition from taking market share. As the world’s largest non-alcoholic beverage company, Coca-Cola has the 5th most valuable brand in the world. Coca-Cola has a massive product portfolio. It owns or licenses more than 500 beverages, with 21 brands that generate $1 billion or more in annual sales.

Soda sales are slowing in the U.S., but Coca-Cola’s massive size and financial resources have given it the flexibility to invest in new products. For example, Coca-Cola has built its portfolio outside sparkling beverages, with water, juice & dairy, and ready-to-drink coffee and tea. Some of the company’s still beverage brands include Dasani, Minute Maid, Vitamin Water, Smart Water, Honest Tea, Simply Beverages, Fuze, and Powerade. These brands will help lead the company to growth in the future.

Coca-Cola will expand its portfolio even further with the recent investment in energy drink company BodyArmor. This deal boosts Coca-Cola’s presence in the growing sports beverage industry, and allow it to better compete with Gatorade, manufactured by top rival PepsiCo (PEP). The minority investment gives Coca-Cola the ability to pursue a full acquisition down the road, if the partnership performs up to expectations.

Serving Up A Tall Glass of Dividends

Coca-Cola’s steady earnings fuel its impressive dividend history. The company has increased its dividend for 56 years in a row, including a solid 6% raise in 2018. The forward annual dividend of $1.56 per share represents a dividend yield of 3.4%. Berkshire Hathaway owns 400 million shares, which means the company will collect $624 million in dividends over the next year alone.

Coca-Cola’s dividend is highly secure, and it should have no trouble continuing to increase the dividend each year. Analysts, on average, expect the company will generate earnings per share of $2.07 for 2018, meaning the dividend is sufficiently covered with underlying profit. This is a challenging time for Coca-Cola, as consumer preferences have shifted in the U.S. away from soda. But Coca-Cola is still one of the most valuable brands in the world, and generates more than enough cash flow to raise its dividend each year. These qualities make Coca-Cola a classic Buffett holding, and a high-quality dividend stock.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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Coca-Cola’s long history of annual dividend increases is due to the company’s strong business model.
buffett, stock, dividend, coca cola
Thursday, 23 August 2018 02:16 PM
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