The stock market has gotten off to a rocky start to the year, with the broader market down about 5% this year (as of March 28) and regularly experiencing wild swings.
But if you were to ask Warren Buffett, you might hear a different story. Berkshire Hathaway's stock is up a blistering 16.5%. Investors view the stock as a flight to safety with its diverse businesses, massive cash pile, and experienced management team.
Many stocks in Berkshire's massive $290 billion equities portfolio have gotten off to a good start this year. One classic Buffett stock, in particular, has crushed the stock market this year and has a nearly 3% dividend yield. Let's take a look.
A true Buffett stock
Now at 94 years old, Buffett is still the CEO of Berkshire but he's less involved in the business than he once was and has many experienced stock pickers at his disposal. So when Berkshire buys a stock, a frequent question is whether it was a true Buffett pick or a stock pick from one of his investing lieutenants.
Coca-Cola (KO 0.10%) is a true Buffett stock. Berkshire acquired a large stake in the company in 1988 and today Coca-Cola is still a top-five holding in Berkshire's portfolio, comprising nearly 10% of total holdings.
Buffett tends to have a thing for companies that can build special brands that effectively turn into a strong moat -- and Coca-Cola definitely falls into this category. In Buffett's annual letter to shareholders, the Oracle of Omaha lumped Coca-Cola in with several names in Berkshire's portfolio that are "very large and highly profitable businesses" that "earn very high returns on the net tangible equity required for their operations."
So far this year, Coca-Cola's stock has soared more than 14.5% and outperformed the stock market. Earlier this year, Coca-Cola reported a surprise increase in revenue powered by its sparkling beverages division. This occurred while the consumer staples sector experienced some challenges from President Donald Trump's back and forth on tariffs and the seemingly constant threat of inflation.
NYSE: KO
Key Data Points
Coca-Cola's strong brand enables the company to pass higher costs from inflation on to its customers because customers are less likely to cut back on the classic soda beverages they've been drinking for years.
Investors also had concerns about how aluminum tariffs imposed by Trump might impact the company, but management largely shrugged the threat off, saying the company has the flexibility to focus on transitioning more of its drinks into plastic packaging.
"Coca-Cola looks like one of the safest plays in what has become a minefield of challenges for the broader consumer staples group due to GLP-1, tariffs, foreign exchange and other issues," Truist analyst Bill Chappell wrote in a research note following the company's earnings.
Coca-Cola has also remained agile and not afraid to expand into new types of beverages as consumers shift into healthier alternatives. The company now owns 200 brands worldwide, including soda, alcohol, water, hard seltzer, coffee, and probiotic soda.
A rock-solid stock through the cycle
Now, Coca-Cola may not offer the same upside as an artificial intelligence stock in a bull market, but it's going to be a rock-solid stock through the economic cycle, which is likely one of the things that Buffett and Berkshire love about the company. Over the last five years, Coca-Cola is up more than 65%, delivering average annual returns of 13%, which is better than the broader market's long-term average of about 10%.
Coca-Cola is also a stock that investors can use to generate reliable passive income. It has a roughly 2.9% dividend yield. The company has now raised its divided for an astounding 63 straight years and returned more than $93 billion in dividends to shareholders since 2010.
