Warren Buffett has long sung the praises of Coca-Cola, counting it among his favorite dividend stocks. The Oracle of Omaha collected over $700 million in dividends from the beverage giant last year alone.
With the markets dipping in and out of bear territory, should everyday investors follow Buffett’s lead and scoop up shares of this dividend stalwart? Let’s take a closer look at why Coca-Cola makes a compelling case.
An Unrivaled Brand Portfolio
Coca-Cola is far more than just its signature soda. The company boasts over 200 brands across a diverse range of beverage categories including juices, coffees, teas, sports drinks, waters and more.
Flagship brands such as Minute Maid, Dasani, Simply Orange and Smartwater have given Coca-Cola an unrivaled brand portfolio and extensive global distribution network.
This wide economic moat has enabled Coca-Cola to retain its position as the largest non-alcoholic beverage maker in the world.
Through decades of operation and billions spent on marketing and expansion, Coca-Cola has achieved the ultimate combination of brand recognition, consumer loyalty and marketplace dominance.
According to Warren Buffett, these are the hallmarks of a wonderful business. The company’s brands face little threat from competitors, and its global scale creates production and distribution efficiencies.
This steady competitive advantage has allowed Coca-Cola to deliver consistent earnings growth over time, even during recessionary environments.
Strong Growth Despite Challenging Conditions
Coca-Cola has pushed through the economic headwinds of 2022 admirably. In its most recent quarterly results, the company reported organic revenue growth of 16% driven by price increases and steady volume growth. Earnings per share grew 14% year-over-year.
Coca-Cola gained value share in the global non-alcoholic ready-to-drink beverage market, meaning it captured a larger slice of this massive, recession-resistant industry.
While consumers are cutting back on discretionary purchases, they continue to reach for affordable treats like sodas, juices and flavored waters. Coca-Cola caters well to this demand with its diversified portfolio of affordable indulgences.
The company has also innovated to keep up with changing consumer preferences. Coca-Cola now offers over 500 low- and no-sugar options as health consciousness rises. Bringing bottling operations in-house has also boosted profit margins considerably over the past five years.
With its strong brands and efficient operations, Coca-Cola seems poised to deliver steady earnings growth for years to come. This is the type of boring yet profitable company Warren Buffett loves to buy and hold forever.
An Aristocratic Dividend History
Beyond stable earnings, Coca-Cola offers investors a steadily rising dividend. The company is a member of the Dividend Aristocrats, an elite group of stocks that have raised their dividends annually for at least 25 consecutive years.
In fact, Coca-Cola has increased its dividend for 60 years straight, making it a Dividend King. This remarkable track record reflects Coca-Cola’s consistency, financial health and shareholder-friendly values.
Today the stock pays out $1.84 annually, translating to a 3.5% dividend yield. With expected free cash flow of $10 billion in 2023, the company has plenty of room to keep hiking the payout. Coca-Cola usually announces dividend increases every February.
Given its sturdy cash flows and reasonable payout ratio, investors can likely expect 6-8% annual dividend growth going forward. As Warren Buffett said in his latest shareholder letter, “Growth occurred every year, just as certain as birthdays.” Buffett collected $704 million in Coca-Cola dividends last year. With the stock’s cost basis near zero, this entire amount was profit.
Coca-Cola: A Defensive Cornerstone
Coca-Cola offers the total dividend investing package: stable business fundamentals, recession resilience, strong brands, worldwide reach, reasonable valuation and an aristocratic payout.
Income investors should strongly consider following Warren Buffett’s lead and buying shares of this defensive cornerstone.
While the stock may not soar in bull markets, it should also hold up better in turbulent times compared to more speculative names. For dividend investors, slow and steady wins the race.
Coca-Cola is unlikely to make you rich overnight, but should deliver a growing stream of dividends through any economic environment.