This Massive Hedge Fund Company Has Been Buying The Coca-Cola Company. Should You?

Photo: Mike Mozart via Flickr.

We should never blindly copy any investor's moves, no matter how famous, talented, or successful the investor. Still, it can be useful to keep an eye on what smart folks are doing. 13F forms can be great places to find intriguing candidates for our portfolios.

For example, a glance at the latest quarterly 13F filing from Bridgewater Associates shows that its largest new position, and its 27th-largest holding, is Coca-Cola (NYSE: KO  ) .

Why Bridgewater Associates?
Bridgewater Associates is one of the world's largest hedge fund companies -- and in 2010 and 2011 it ran the best-performing hedge fund as well. Bridgewater was founded by Ray Dalio, who in making his investment decisions focuses on macroeconomic factors such as inflation, currency exchange rates, and GDP growth. He's clearly skilled, as Bridgewater's $13.3 billion portfolio attests.

Why The Coca-Cola Company?
Let's look at some reasons why Bridgewater might like Coca-Cola -- and why you might want to consider it for your portfolio. For starters, there's a reliable dividend that has been paid each quarter for 94 years and has been raised each year for the past 50 years. The yield was recently 2.9%, and it has been increased at an average annual rate of 8% over the past five years.

The company boasts 17 brands that each generate more than $1 billion in sales annually. These include Coca-Cola, Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia, and Del Valle. Its beverage distribution network is the world's largest, with sales in 200 countries and territories and more than 1.9 billion servings distributed daily. That network is a powerful competitive advantage.

Coca-Cola has grown into a massive company, but room for further growth remains, especially in developing markets, where a growing middle class is likely to consume more and more beverages. For example, my colleague Ted Cooper has pointed out that "Brazil's per capita consumption has grown at 5.5% per year over the last 20 years and shows no sign of slowing down."

Big deal
In recent news, Coca-Cola agreed to spend $2.15 billion for a 16.7% stake in energy drink giant Monster Beverage (NASDAQ: MNST  ) . That's a big deal not only because of the eye-popping price tag -- and not only because it adds to Coke's involvement in the fast-growing realm of energy drinks -- but because the deal has the companies swapping some drinks. Monster will take over Coke's energy drinks (think NOS and Full Throttle), while Coke will take over Monster's non-energy drinks, such as Hansen's Natural sodas, Peace teas, and Hubert's Lemonade. That makes Monster a pure play focused solely on energy drinks, while Coke gains new brands for its powerful marketing team to sell.

This isn't Coke's only significant deal, either. It owns a similar stake in Keurig Green Mountain and has bought many brands in recent years, such as Honest Tea. Growth by acquisition is a reasonable strategy for Coca-Cola, which can use its deep pockets and massive distribution network to wring more value from new brands.

Warren Buffett is comfortable owning a big chunk of Coca-Cola because he has little doubt that years from now, the company will still be selling billions of servings of beverages around the globe. Still, the company faces some challenges. For one thing, it's hard for a company of its size (market capitalization: $180 billion) to grow briskly. Next, it lacks the diversification of rival PepsiCo, which boasts a massive lineup of snacks.

Perhaps most importantly, the beverage landscape has shifted in recent years, with sodas losing share to drinks such as waters, tea, and energy drinks. Domestically, Coca-Cola's sales volume has been flat or falling recently (though international numbers have been better). Sales of diet sodas have also dropped due to consumer concerns about sweetener safety. The company has addressed this, in part, by introducing "Coca-Cola Life," sweetened with stevia. It's also seeing solid growth among its nonsoda offerings.

Overall, investors at Bridgewater see more to like than to worry about at Coca-Cola, and they have loaded up on the stock. Given its mammoth brands, reliable dividends, deep pockets, and growth prospects, the company is well worth considering for your portfolio, too.

Other top dividend stocks for the next decade
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Selena Maranjian

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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9/3/2015 4:00 PM
KO $39.16 Up +0.26 +0.67%
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