When you think of billionaire investor Warren Buffett, you probably think of long-term successes. He's led Berkshire Hathaway to a compounded annual gain of 20% over more than half a decade. That's compared to a 10% gain for the S&P 500 index. Buffett's done this by picking companies with solid businesses -- trading at reasonable valuations.
One of Buffett's favorites is Coca-Cola (KO 0.49%). He initially bought shares back in the late 1980s and has held on ever since. In fact, Coca-Cola today is Berkshire Hathaway's third-largest position.
So, should you follow in Buffett's footsteps and add this beverage giant to your portfolio?
A diverse portfolio
Coca-Cola is the world's largest nonalcoholic beverage company, and it sells its products in more than 200 countries. Speaking of products, the company has a diverse portfolio including sparkling beverages, hydration, coffee and tea, and nutrition, just to name a few categories. You'll recognize brands such as Sprite, Costa coffee, and Minute Maid.
In spite of Coca-Cola's huge worldwide presence, the company still sees significant growth opportunities. About 80% of the world's population live in developing and emerging nations. And there, commercial beverages make up only 30% of beverages consumed. Coca-Cola has only a 6% volume share. So, there's definitely room to grow across these geographies over time.
In recent years, Coca-Cola has delivered financial performance. Earnings and key metrics such as free cash flow and return on invested capital have climbed. The share price also has advanced.
KO Free Cash Flow data by YCharts
Buffett also knows a good dividend stock when he sees it. And Coca-Cola scores a win here too. The company is a Dividend King. That means it's lifted its dividend for at least the past 50 consecutive years.
Why should that record matter to us if we buy the shares now? Because it shows dividends are important to Coca-Cola. So, the company may aim to continue this policy of raising dividends into the future.
As for the dividend itself, Coca-Cola pays $1.76 per share at a yield of 3.23%. The yield is higher than the nonalcoholic beverage industry average of 2.52%, according to NYU Stern School of Business research.
Your investment strategy
All of this sounds great. So, should you love Coca-Cola as much as Warren Buffett does? It depends on your investment strategy.
Getting back to the idea of growth, yes, Coca-Cola does have opportunities well into the future. The company has set a long-term growth target of 4% to 6% increases in organic revenue, for example.
But investors looking for a high-growth company would be better off considering other options. Many companies across sectors are delivering double-digit growth. As a result, these companies may beat Coca-Cola when it comes to share performance.
That said, Coca-Cola may be just the right choice for the more cautious investor. By this, I mean an investor looking for steady growth, dividend payments, and progressive stock price increases in the years to come.
But what about valuation today? Coca-Cola's earnings suffered in 2017 as it refranchised its bottling operation. And that impacted valuation at that time.
Otherwise, the company's price-to-earnings ratio hasn't shifted dramatically over the years. So, right now, considering Coca-Cola's track record and outlook, the price looks reasonable.
And this means investors looking for safety and some growth may want to say, "Coke is it!" -- to use an old Coca-Cola slogan -- and follow Buffett into this stock you can probably hold forever.
