You may have seen photos of Warren Buffett happily sipping Coca-Cola's (KO +1.74%) famous soft drink. But Buffett isn't just a fan of the beverage -- he also loves the company. Berkshire Hathaway's chairman started buying Coca-Cola shares in the late 1980s over a seven-year period and has held onto them ever since.
There's a lot to like about Coca-Cola, including its brand strength. It's grown earnings over time and increased its dividend annually. But does this, along with the nod from Buffett, make the beverage giant a good investment for you?
Buffett's 400 million shares
First, let's look at Buffett's experience with Coca-Cola. Berkshire Hathaway owns 400 million shares of the company. Back in 1994, that equaled a dividend payment of $75 million for the year. Thanks to Coca-Cola's dividend increases, however, the beverage maker paid Berkshire Hathaway $704 million in dividends last year.
But you don't have to be a high-net-worth individual with millions of dollars invested in Coca-Cola to benefit from passive income. Even a small investment in the company can bring you annual payments that you could reinvest in this stock or another asset -- or spend or save as you choose. The positive point here is that Coca-Cola has a solid track record of dividend increases.
As a Dividend King, it's raised its payment every year for more than 50 years. This shows that rewarding shareholders is a priority for the company. And that's unlikely to change.
At the same time, Coca-Cola's billions of dollars in free cash flow show it has what it takes financially to sustain dividend increases.
KO Free Cash Flow data by YCharts.
Now let's consider Coca-Cola's valuation. The stock has climbed quite a bit since Buffett's investment. Yet it still remains cheap -- and is very far from being a value trap.
The stock trades for 26 times trailing-12-month earnings, less than major rivals.
KO P/E (price-to-earnings) Ratio. Data by YCharts.
Some may argue that Coca-Cola probably won't deliver enormous growth in the coming years. After all, the company already sells its products in more than 200 countries. And in the U.S., Coca-Cola holds more than 46% of the carbonated soft-drink market, according to Statista. Limited earnings-growth potential could limit share price performance, too.
What you're looking for in an investment
OK, it's time to get back to our question: Should you love this Dividend King as much as Buffett does?
It's important to consider what you're looking for in an investment. If you want a high-growth stock, Coca-Cola probably isn't the best choice. Instead, you may want to turn to younger consumer stocks with more territory to conquer -- and revenue forecasts for double-digit growth.
But if you're interested in a company that promises you passive income and potentially steady earnings and share-price growth over time -- then Coca-Cola may be for you. It's important to remember that just because Coca-Cola is a market giant, it doesn't mean the growth story is over.
NYSE: KO
Key Data Points
Coca-Cola sees emerging markets as its next big growth driver. That's because, today, commercialized beverages there represent only 30% of beverage consumption. And these markets represent 80% of the global population. So there's a lot of room for growth.
In developed markets, Coca-Cola continues to grow by introducing new drinks and offering products according to what people are looking for today. This and Coca-Cola's brand strength have helped it raise prices in recent times and continue to report gains in global unit case volume, revenue, and earnings per share.
All of this means there are plenty of reasons to like Coca-Cola, the company, just as much as its famous drink. For investors looking for passive income and steady long-term growth, the beverage maker is a top Warren Buffett stock to buy now.
