Back in 1994, Berkshire Hathaway bought 400m shares in Coca-Cola (NYSE:KO) for $1.3bn. But what if Warren Buffett‘s investment vehicle had decided to invest in FTSE 100 giant Unilever (LSE:ULVR) instead?
The answer is that the results would have been quite different for Berkshire shareholders. And there’s an important lesson in this for investors to consider today.
The difference
Berkshire hasn’t reinvested any of its Coca-Cola dividends, preferring to use them elsewhere. But in 2024, the investment returned $776m (£617m) in cash (before taxes).
The market value of the investment’s also grown. Based on the current share price, it’s worth $28.5bn – over 20 times Berkshire’s initial investment.
A similar investment in Unilever 31 years ago would have bought around 180m shares. And the (pre-tax) dividend from this in 2024 would have been around £266m.
At today’s prices, that would have a market value of £8.1bn. That’s not a bad result by any means, but it’s well short of what Buffett has achieved with Coca-Cola.
Investment lessons
There are a couple of lessons investors can take from this. The first is that steady growth over a long period of time can achieve outstanding results.
Coca-Cola isn’t known for its explosive growth prospects. But despite this, Berkshire’s stake has reached a point where it’s returning almost 60% of the initial investment each year.
The other is that there’s a difference between great companies and outstanding ones. And – again – this matters more over the long term, rather than months or years.
Unilever isn’t a bad business at all. But it hasn’t been as strong as Coca-Cola and there’s a huge difference in the amount of cash an investment in each from 1994 would generate today.
Unilever
Over the last 30 years, Coca-Cola’s been relatively focused – while it has expanded its lines, it’s looked to concentrate on soft drinks. This has proven to be a winning strategy. By contrast, Unilever has opted for a much broader portfolio. Its products have ranged from shampoo and toilet cleaner to ice cream and mayonnaise.
That however, is changing. The firm has divested some of its weaker brands, is in the process of spinning off its ice cream division, and is reported to selling off some of its other lines.
There are no guarantees, but a more focused operation could have stronger growth prospects going forward. At least, that’s what investors should think about right now.
Risks
Both Coca-Cola and Unilever are relatively steady companies. But even the most stable of businesses come with risks. With Coca-Cola, there’s an obvious threat on the horizon in terms of GLP-1 drugs. This – and a general trend towards healthier choices – could limit demand for its products going forward.
As Unilever moves away from its food – especially ice cream – products, this risk subsides. But it will still have to contend with the threat of inflation cutting into its profit margins.
Despite this, I think both stocks are worth a look. Growth might be more incremental than exponential, but that’s a formula that’s generated outstanding returns for Buffett.
