In January 1967, Berkshire Hathaway did something it’s done only once in the company’s history: It paid a cash dividend. Warren Buffett wrote to Berkshire shareholders earlier this year: “I can’t remember why I suggested this action to Berkshire’s board of directors. Now it seems like a bad dream.”
Aside from that one time, Buffett has prioritized using Berkshire’s profits to reinvest in growth, rather than rewarding shareholders with dividends. However, that doesn’t mean he doesn’t enjoy receiving dividends.
Most of the stocks in Berkshire Hathaway’s portfolio pay dividends. A few boast especially impressive dividend track records. One high-yield Buffett stock has even increased its dividend for 63 consecutive years.
Buffett’s dividend royalty
Many readers might already know which stock I’m talking about. If not, I’ll end the suspense: It’s The Coca-Cola Company (KO -0.54%).
Last month, Coca-Cola’s board of directors approved a 5.2% increase to the company’s quarterly dividend. This marked the 63rd consecutive dividend increase for the company. Coca-Cola’s dividend has grown by roughly 55% over the last 10 years.
This latest dividend hike further cements Coca-Cola’s position in the elite group of stocks known as Dividend Kings. To join the club, a company must increase its dividend for at least 50 consecutive years. No other stock in Berkshire’s portfolio meets this hurdle.
Dividend Kings don’t necessarily have to offer especially juicy dividends; many of them don’t. However, Coca-Cola pays a high forward dividend yield of 2.94%, which makes the food and beverage giant’s dividend program even more impressive.
One of the legendary investor’s “forever stocks”
In Buffett’s 2023 letter to Berkshire Hathaway shareholders, he wrote about Coca-Cola (and American Express, another longtime holding): “When you find a truly wonderful business, stick with it.” That’s exactly what he has done with Coca-Cola.
Buffett has owned Coca-Cola longer than any other stock currently in Berkshire’s portfolio. He initiated a position back in 1988. Nearly four decades later, Coca-Cola still ranks among the conglomerate’s biggest holdings and makes up 9.3% of Berkshire’s total portfolio.
I think it’s fair to say that Coca-Cola is one of Buffett’s “forever stocks.” He’d likely agree. In that 2023 letter to Berkshire shareholders, Buffett included Coca-Cola among eight stocks that he expects to “maintain indefinitely.”
Coca-Cola certainly isn’t giving Buffett any reason to sell. The stock is one of his biggest winners so far this year, with a double-digit percentage gain while the overall stock market has floundered.
Is Coca-Cola a no-brainer buy?
There’s unquestionably a lot to like about Coca-Cola. It pays a juicy dividend. The company boasts an exemplary track record of dividend increases. Buffett thinks so highly of Coca-Cola that it’s his longest-held position and one he intends to hold on to indefinitely. Coca-Cola is also trouncing the market in 2025.
Is all this enough to make Coca-Cola a no-brainer buy right now? I wouldn’t go that far, at least not for every investor.
Notably, Coca-Cola isn’t among the handful of stocks Buffett has bought recently. He hasn’t added to Berkshire’s position in years. Why isn’t the “Oracle of Omaha” buying more shares of a company that he clearly admires? I suspect the main reason is valuation.
Coca-Cola’s shares trade at 23.3 times forward earnings. That isn’t a ridiculously high multiple. However, it isn’t cheap by any stretch of the imagination.
In the fourth quarter of 2024, Coca-Cola’s earnings per share (EPS) increased by 12% year over year. The company expects comparable currency neutral EPS (which isn’t based on generally accepted accounting principles, or GAAP) will rise between 8% and 10% year over year in 2025. Those are relatively good growth numbers, but they’re not enough to make Coca-Cola stock the kind of bargain that would entice Buffett to buy more.
I don’t think growth and value investors will find Coca-Cola all that attractive. On the other hand, income investors will probably like its high dividend yield and status as a Dividend King. Whether or not Coca-Cola is a no-brainer choice for income investors is debatable, but it’s a solid pick.
American Express is an advertising partner of Motley Fool Money. Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
