With a 3% yield, Warren Buffett’s investment in Coca-Cola still looks promising today

Oliver explains how Coca-Cola was one of Warren Buffett’s best value investments. He thinks the shares could offer attractive dividends over the long term.

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Warren Buffett is arguably the most famous investor in the world. He’s been successful through a lot of patience, a long-term learning mentality, and clever partnerships and investments.

One of his all-time favourite investments is Coca-Cola (NYSE:KO). I think Buffett has done an excellent job in his career of blending his complex financial skills with investing in simple businesses that are easy to understand in terms of operations.

Here’s why I think Coca-Cola will continue to be a top choice for investors for a long time. Particularly, I think the company is going to be popular for those looking for generous dividends.

The Warren Buffett way

Many investors admire Buffett for a business strategy called value investing. The aim of the game here is to look for shares that are potentially selling below what they are actually worth based on forecasts of the company’s future cash flows and earnings.

In my opinion, it’s the best way in the world to invest. The reason I say this is that by having a value mindset, investors can reduce their risk and make their portfolios less speculative.

Think of it this way. If I buy gold when everybody in the market is also looking to buy gold, the price is going to be higher. However, if I buy gold when everybody in the market is distracted by something else, let’s say technology shares, the gold is likely to be cheaper. The aim of value investing is buying what people don’t want now but will likely want later when conditions have changed.

That might sound easy on the surface. But in reality, it takes a lot of wisdom, intelligence, and strength to act independently and not follow the crowd.

Coca-Cola as a value investment

Buffett was very wise when it came to investing in Coca-Cola. He initially bought his shares in the company in 1988. That was the year after the Black Monday stock market crash of 1987. At the time he made the purchase, the economy was still recovering.

The legendary investor knew that while the company may not have been mega cheap because most people recognised the business as having great long-term worth, it became more reasonably valued due to the crash in the stock market at large. He saw this as a great opportunity.

At the time of his initial investment in the firm, it was expanding into emerging markets. So, he likely realised that Coca-Cola doubled up as both a value and a growth investment.

What about investing in Coca-Cola today?

Today, the company still remains strong, in my opinion. I believe it’s reasonably valued, offers moderately good growth, and has a generous dividend yield of around 3%.

But there are always risks when investing. For Coca-Cola, it is reasonable for me to be concerned that it has already acquired most of its potential customers. Once a business gets to the size Coca-Cola has, it’s arguably not reasonable to expect the same growth the firm saw when the company was on its way to the top. That’s why I think the dividends will be even more important for the firm’s shareholders over the next few decades.

While I have considered investing in the company, it’s not quite the right fit for me. However, for Buffett, it’s been one of his best.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Oliver Rodzianko has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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