2 Different Perspectives

Next up, the Coca-Cola Company (KO), which faces similar problems as GIS. To be fair, Coke is in a better spot because it has plenty of low- (or no-) calorie drinks to push, such as Coke Zero, Dasani bottled water and various coffees and teas. But the shift toward healthier eating is still a headwind.

Meantime, Coke’s lame dividend growth—typically just a penny or two a year—isn’t enough to get our hearts racing, especially with the stock yielding just 2.7%. But despite all that, investors still cling to Coke as a “safety” stock. That’s why they’ve bid its shares well above its sluggish payout growth.

Contrarian Investor

How dividends and compounding have boosted returns

While stock price appreciation is impressive, the real power of Buffett’s Coca-Cola investment lies in dividends and compounding.

Coca-Cola has increased its dividend every year since Buffett’s initial investment. Today, Berkshire Hathaway receives over $700m in annual dividends from its Coca-Cola shares. Given that Buffett originally invested $1.3 billion, this means he is receiving over 50% of his initial investment back in dividends each year – without selling a single share.

The power of dividend reinvestment and compounding has exponentially increased Buffett’s returns. Over time, the combination of dividend growth and share price appreciation has made Coca-Cola one of the most successful long-term holdings in Berkshire Hathaway’s history.