Warren Buffett has enjoyed some big advantages that helped him along the way as he amassed his investing fortune. One of the most impactful has been time. The billionaire credits the many decades he's had as an investor for being a key factor supporting his success. "It helps to start early and live into your 90s," he said in this year's letter to Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) shareholders.
For the last 30 of those years, Buffett has made Coca-Cola (KO) an important part of Berkshire's portfolio. He accumulated 400 million shares of the beverage titan by 1994 and now counts over $700 million in annual dividend payments from that single investment. It's true that Coke isn't as cheap as it was back in the '90s, but it is still priced at a great value today. Here's why.
Still growing
Wall Street has avoided Coca-Cola's shares this year, either because investors were more focused on high-growth tech stocks or because they were worried that the company's best days are behind it. Yet this is an impressive growth stock, too.
Sure, the company is facing demand pressures as some consumers move away from traditional soda drinks. But Coke has complimented its huge portfolio of core soda brands with offerings in popular growth niches like sparkling waters, teas, and energy drinks.
This strategy is helping deliver solid revenue gains. Organic sales were up a healthy 11% last quarter, in fact. Coke is achieving this growth through a mix of rising prices and increased volumes. That's a great sign for investors who simply want to patiently hold the stock as Coke improves on its already impressive market share in the global beverage industry.
Margins are rising
Coke is among the most impressive businesses on the planet when it comes to financial strength. Start with profit margin, which last quarter held steady at a blazing 30% of sales. That's roughly double the rate that PepsiCo (PEP -0.62%) generates across its portfolio of beverage and snack food brands.
KO Operating Margin (TTM) data by YCharts
Coke produces a flood of free cash flow, too, thanks to assets like its massive global reach and highly efficient infrastructure. This cash allows Coke to invest aggressively in areas like marketing while still delivering direct cash returns through stock buybacks and dividend payments.
Dividend and price
That dividend has risen for more than 60 consecutive years, which is a testament to Coke's enduring competitive strength. The next annual increase should be ample given that management is expecting to finish 2023 with an increase in earnings per share of as much as 14%.
But the best news is that Coke stock looks cheap. Its shares have fallen this year through mid-December even as the broader market has rallied. You can now own Coke for less than 6 times annual sales, down from about 6.5 times sales at the start of the year.
That discount makes no sense given that Coca-Cola is gaining market share and improving on its already stellar profit margin. And a rising dividend should support even better returns for shareholders who choose to reinvest those increasing payments. Coke might not be in your portfolio for several decades like it has been for Warren Buffett. But it can make you richer over the long term.
