Investors seeking inspiration in the stock market, they should look no further than Warren Buffett.
He’s arguably one of the best stock pickers of all time. His company Berkshire Hathaway has long produced returns that have comfortably trumped the market.
Alongside seeking out stocks that can bag him incredible returns, Buffett loves to make passive income. And today his investment in Coca-Cola (NYSE: KO.) yields a staggering 59.7%.
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A whopping payout
Readers may wonder how that’s possible. Well, let me explain.
Buffett first snapped up its shares back in 1988. Over the next few decades, he slowly built up his position. Today, he owns over 400m shares worth over $24.7bn.
This year, he’s set to receive $776m in dividends from his investment. For us mere mortals, the Coca-Cola yield stands at 3.1%. For Buffett, that means he’s in line to receive back just shy of 60% of his $1.3bn investment through dividends. Incredible.
Lessons to learn
But what does this tell us?
Well, first it shows that playing the long game is effective. For starters, the value of Buffett’s investment has risen massively in 36 years. During that time, the Coca-Cola share price has gone through numerous peaks and troughs. But those are ironed out over a longer timeframe. His average buy price is $32.90. Today, a share costs $63.90.
It also shows that targeting shares that pay a dividend is an incredible way to start generating a second income. The ‘Oracle of Omaha’ owns plenty of other stocks that also have bulky yields, such as Citi Group, Chevron, and Kraft Heinz.
It’s something I’ve tried to do with my own portfolio. That’s why around 75% of the stocks I own pay a dividend.
One to consider?
Buffett’s investment in Coca-Cola is inspiring. It has me wondering whether it’s a stock worth considering today.
There’s plenty to like about the business. It’s a renowned brand and that gives it a competitive advantage. Last year, despite a tough trading environment, it grew its revenue by 6% to $45.8bn.
In Q1 this year, Coca-Cola delivered revenue growth of 3% to $11.3bn while earnings per share also grew 3% to $0.74. This shows that demand for its products has remained steady despite economic uncertainty. It’s no surprise given that over 1.9bn servings of its drinks are consumed in over 200 countries every day.
There’s also its dividend track record. Its yield is by no means the highest out there. However, it has increased its payout for 62 years on the trot. Dividends are never guaranteed, so a record like that is worth its weight in gold. It’s for such reasons that I suspect Buffett is such a big fan of the stock.
Potential issues?
I do see some potential threats to the business. The largest one is shifting consumer habits. Many Coca-Cola products are high in sugar and aren’t associated with a healthy lifestyle.
The stock also looks on the expensive side. It trades on 25.7 times earnings. That’s above the S&P 500 average of around 23.
But I’d still buy it today if I had the cash. Coca-Cola is a quality business and brand. And if it’s good enough for Buffett, it’s good enough for me.
