Warren Buffett began buying shares of beverage giant Coca-Cola (KO 0.08%) in 1988 through his holding company, Berkshire Hathaway (BRK.A 0.55%) (BRK.B 0.50%), which now owns more than 400 million shares. That's worth nearly $23 billion at today's price -- nearly a tenth of Coca-Cola's total market cap of nearly $244 billion.

Considering Buffett's success, it's worth checking out why he likes certain stocks. Berkshire Hathaway only owns around 40 stocks, and most of them fit into a specific investing approach that's made Buffett one of the richest people on the planet.

The top player in the industry

Coca-Cola is the largest beverage company in the world, with $41 billion in trailing 12-month revenue. It has staged a robust comeback from pandemic declines, and sales increased 12% in the 2022 second fiscal quarter (ended July 1) on top of already strong numbers from last year. It's also highly profitable, although earnings per share decreased in the second quarter as a result of supply chain issues, increased costs, and global inflation.

The company operates a disciplined growth model that combines beverage innovation and brand building for top-line growth with asset optimization and resource allocation for bottom-line growth. It leverages its unparalleled distribution network, honed through decades of services, to meet these goals.

Despite a fair amount of global ubiquity, Coca-Cola still sees tremendous growth opportunities. It says that it has 14% of market share in developed markets, which are 20% of the global total, and only 6% of market share in emerging markets, which are 80% of the total. Its large cash position, which reliably increase with sales, allows it to invest in new beverages and other ventures to capture greater market share.

It has 1,500 initiatives planned for 2022, and it's leaning more heavily into digital options to see how it can use digital platforms to enhance its products and services. As lofty as Coca-Cola's position already is, it's aiming even higher.

Fair valuation, big dividends

Coca-Cola stock trades at a price-to-earnings (PE) ratio of around 26, which is a pretty standard valuation for this stock. It's stayed relatively constant for the past few years despite market volatility, and today, that doesn't look so cheap compared with other consumer goods stocks. That's because stock prices have been tanking across the board, taking their valuations along with them, and the flight to safety means that investors are putting their money into secure stocks. Coca-Cola stock is down a moderate 4% in 2022, far better than the 24% decrease in the S&P 500.

KO Chart

KO data by YCharts.

Today, these shares look more fairly valued than undervalued, and in fact, they're above the Dow Jones average PE ratio of 17 and the S&P 500 average PE ratio of 18. That's because the company is so strong in this market.

Its dividend yield, however, is still a standout. It yields 3% at the current price, as compared to the average S&P 500 yield of 1.79%. Coca-Cola continued to raise its dividend despite severe sales declines at the beginning of the pandemic, and it's still going strong. It's a Dividend King, having raised its dividend for 60 consecutive years.

It's also a share-repurchase star, with the intention to buy back $500 million in shares during 2022. Buffett loves stock buybacks as they increase the value of all shares and also demonstrate the company's commitment to shareholders.

Coca-Cola is a great dividend stock pick, and it's easy to see why Warren Buffett likes it. You might want to consider it for your portfolio as well.