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Warren Buffett is considered one of the greatest investors in history.
Therefore, your investment decisions carry a lot of weight.
Your company, Berkshire Hathawayowns 400 million shares of Coca Cola (NYSE:KO), which represents a stake valued at $24 billion. It is also Berkshire Hathaway's longest continuous holding at this time, as the company first acquired its shares 35 years ago.
Since the pandemic hit, Coca-Cola shares have barely moved, almost in the same position.
However, I think it is still a great company to invest in.
Powerful brand
2023 was a difficult year for most consumer brands globally. Since inflation causes cost constraints for most people, it has been difficult to increase income.
However, Coca-Cola has achieved just that.
It increased its revenue 6% year-on-year to $45.8 billion. It's worth noting that most of this revenue growth came from price increases, as the total volume of drinks sold only increased 2%.
This is not bad. It shows that Coca-Cola still has a lot of pricing power, especially in a time of high inflation. Its catchy and powerful brand is the reason consumers continue to buy.
In addition, it has also managed to keep its costs under control. Cost of goods sold only increased 3%, helping overall net income increase 12% to $10.7 billion.
The forecasts for 2024 also impress me. The company expects revenue to rise again by 6% to 7% and earnings per share (EPS) to increase by 8% to 10%.
This is fantastic as it is already the largest beverage company in the world and yet continues to generate significant growth.
The dividend: a benefit and a problem
Coca-Cola is the dividend king, meaning it has increased its dividend for at least 50 years in a row. In this case, it recently announced its 62nd consecutive year of dividend growth.
This is great for investors as its 3.3% dividend yield is a great source of generating passive income.
Ask Warren Buffett. The last time he invested in his stock was in 1994, bringing his total investment to $1.3 billion. Through capitalization, Berkshire Hathaway will earn $776 million in dividends this year thanks to that investment.
However, the 5% dividend increase is less than the 2% increase in free cash flow for 2023. For perspective, free cash flow was $9.7 billion in 2023, with dividend payments and buybacks of shares of the same amount. This leaves the company with very little to reinvest in the business.
If this trend continues where dividend growth exceeds free cash flow, then you could be in for a problem.
That said, I don't think this is going to happen anytime soon, it's just a point I need to consider in the long term.
Plus, with nearly $9.4 billion in cash, Coca-Cola has plenty of room to continue raising its dividend for now.
Now what?
Coca-Cola has incredible brand power and consumers love its products. Therefore, I can continue to see strong and steady growth in the future.
It is also very profitable and constantly improves its operational efficiency. That's why I keep buying more shares.
