Warren Buffett Is Now Earning A Nearly 60% Yield On Coca-Cola - 'When You Find A Truly Wonderful Business, Stick With It'

Few names command as much respect as Warren Buffett, the legendary CEO of Berkshire Hathaway. Known for his long-term, value-oriented approach, Buffett has built a fortune by identifying high-quality companies and holding onto them for decades. One of his most iconic investments is The Coca-Cola Co. KO, a position he first established in 1988 and has held ever since. Today, Berkshire Hathaway is reaping the rewards of this patience, earning a staggering 59.7% yield on its original investment.

The Power of Patience

Berkshire Hathaway began acquiring shares of Coca-Cola in 1988 and continued adding to its position until 1994, ultimately investing a total of $1.3 billion. Fast forward to 2024, and the company now owns 400 million shares of Coca-Cola, worth over $24.7 billion.

Buffett reflected on the Coca-Cola investment in his recent annual letter to investors, highlighting the power of patience and the importance of identifying truly exceptional businesses. “In August 1994 – yes, 1994 – Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire,” he wrote.

The Dividend Growth Machine

One of the key reasons for Coca-Cola’s success as a long-term investment is its consistent dividend growth. In 1994, Berkshire Hathaway received a $75 million cash dividend from Coca-Cola. By 2023, that annual dividend had grown to $736 million. With the beverage company’s recent dividend increase to $0.4850 per share, Berkshire is now on track to receive a staggering $776 million in dividends this year alone – representing a 59.7% yield on its original $1.3 billion investment.

Buffett expressed his confidence in Coca-Cola’s ability to continue delivering dividend growth, stating, “Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke’s quarterly dividend checks. We expect that those checks are highly likely to grow.”

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A Dividend King for the Ages

Coca-Cola’s long history of dividend growth has earned it a place in the elite group of Dividend Kings – companies that have increased their dividends for at least 50 consecutive years. In fact, Coca-Cola has now raised its dividend for an impressive 61 years in a row, a testament to its financial strength and commitment to shareholder returns.

For investors considering purchasing shares of Coca-Cola today, the current dividend yield stands at 3.13%. While this may seem modest compared to Berkshire Hathaway’s 59.7% yield on its original investment, it’s important to remember that Coca-Cola has maintained a strong 10-year dividend growth rate of 5%. As Buffett’s experience demonstrates, the power of compounding can turn even a relatively small initial yield into a substantial income stream over time.

Alternative Paths to Passive Income

While Warren Buffett’s success with Coca-Cola is undoubtedly inspiring, not every investor has the same resources or investment horizon as the Oracle of Omaha. For those seeking to diversify their income streams beyond traditional dividend stocks, alternative investments like real estate can offer compelling opportunities.

Platforms like Arrived and EquityMultiple’s Ascent Income Fund provide investors with access to passive income through fractional ownership of rental properties and participation in commercial real estate loans, respectively. While these investments may not necessarily align with Buffett’s strategy, they can serve as valuable complements to a well-rounded portfolio.

Arrived allows individuals to invest in shares of carefully vetted rental properties for as little as $100, earning rental income and potential appreciation without the hassles of being a landlord. Arrived paid out over $1.1 million in dividends to investors during the first quarter of 2024. You can view available offerings on the platform here. 

EquityMultiple’s Ascent Income Fund, on the other hand, offers exposure to a diversified pool of commercial real estate loans, targeting net returns of 12% with quarterly income distributions and a $5,000 minimum investment. EquityMultiple has a strong track record with over $388 million distributed to investors as of Q4 2023. You can learn more about the Ascent Income Fund and other EquityMultiple offerings here. 

As with any investment, it’s crucial for individuals to consider their own goals, risk tolerance, and available resources when deciding what’s right for their portfolio. While alternative investments like Arrived Homes and EquityMultiple’s Ascent Income Fund may not be suitable for everyone, many investors find that they can play a valuable role in generating passive income and diversifying their holdings.

The Bottom Line

Warren Buffett’s nearly 60% yield on his Coca-Cola investment is a powerful reminder of the rewards that can come from identifying great businesses and having the patience to hold them for the long term. The lesson? "When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable," Buffett said. 

For investors seeking to build their own income streams, a combination of high-quality dividend growth stocks and carefully selected alternative investments can provide a solid foundation for long-term financial success. By focusing on fundamentals, diversifying intelligently and maintaining a patient, disciplined approach, investors can position themselves to enjoy the fruits of compounding for years to come.

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