Searching for a steady performer in a volatile market? This legendary investment can sweeten your portfolio for the long haul.
I’ll admit it — I don’t understand most of Warren Buffett’s investments.
His Berkshire Hathaway (BRK.A -0.58%) (BRK.B -0.64%) holds massive stakes in financial giants like American Express, Bank of America, and Chubb. If the subprime mortgage meltdown of 2008 taught me anything, it would be that I don’t get how the banking sector works and should never own banking stocks again.
It also holds gigantic positions in oil and energy giants such as Chevron (NYSE: CVX) and Occidental Petroleum (NYSE: OXY). I’m sure Buffett has his reasons, but it seems obvious to me that the world is moving on from the fossil fuels era. The only traditional energy titans I would consider buying shares of would be the ones best prepared to tackle renewable and alternative energy sources.
Again, Buffett has his reasons and what works for his enormous portfolio won’t always be good for my modest nest egg.
But when Warren Buffett’s picks make sense, they make a lot of sense.
One of Berkshire Hathaway’s largest holdings strikes me as a fantastic buy right now. Mind you, I understand why Buffett and Berkshire aren’t necessarily buying any more shares of Coca-Cola (KO 1.87%). At the same time, I highly recommend this no-brainer for new investors in 2025.
How sweet is Coca-Cola’s valuation?
At first glance, you might think I’m being silly. Coca-Cola’s stock is trading at a modest price-to-earnings (P/E) ratio of 28.5. On the basis of cash profits, the stock is downright expensive at 63.6 times free cash flows.
I’m not pounding the table due to consistent market trends, either. The soft drink giant’s stock has underperformed the S&P 500 (^GSPC -1.71%) market index over the last year but outperformed in 2025.
And it’s not like Warren Buffett is sending out “buy” signals about this stock right now. Berkshire is buying Occidental Petroleum and selling Apple stock while leaving its Coca-Cola holdings untouched for years. Berkshire has neither bought nor sold any Coke shares in the last decade. Buffett’s company is simply collecting massive dividend payouts from its Coca-Cola position.
How Coke’s dividends fizzed up over time
Now you’re starting to see why Coca-Cola is a buy today, right?
Coke is the living definition of a great dividend stock. This is the kind of steady income generator you want in your portfolio for those golden years. And the earlier you set up your dividend-generating position, the better it will serve you in the long run. Berkshire set up its Coca-Cola position in 1988 and 1989 at a split-adjusted $1.37 per share. The effective yield was a reasonable 2.7% in early 1989.
Today, Coca-Cola pays quarterly dividends of $0.485 per share. That’s $1.94 per share, per year — 42% more than Berkshire’s original purchase price. All Buffett had to do was to set up a sizable Coca-Cola position and wait for approximately 35 years — earning more and more dividends along the way.
Coca-Cola’s dividends are the gift that keeps on giving
Coca-Cola keeps doing exactly what Warren Buffett expects it to do, which is to generate robust cash profits and funnel most of that surplus cash into dividend payouts. Past performance is no guarantee of future results, but Coca-Cola is one of those ultrastable companies that probably will do the same thing for the next several decades.
So it’s not too late to kick-start a future income-generating Coca-Cola position of your own. You’re just doing it on a smaller scale than Warren Buffett, relying on the same wealth-building tools of dividend increases and long investment periods. The stock isn’t necessarily super cheap today, but that’s alright — all you need is a reasonable valuation and a decent starting dividend.
Coca-Cola delivers both of these essential qualities in February 2025. I can’t wait to see that effective dividend yield expand over the next few decades.
American Express is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
