Coca-Cola (KO +0.28%) stock has underperformed the S&P 500 for years, except for some key moments when investors flocked to its stock amid market turmoil. Still, Warren Buffett has touted it as an incredible company and has demonstrated how Berkshire Hathaway has used Coke's famous dividend to its advantage.
One of those key moments is now, and investors can see Buffett's wisdom in play. As the S&P 500 continues to flounder, down 8% this year, Coca-Cola stock is up 19%.
But it's more than the regular reasons why Coca-Cola is a secure stock worth owning in any environment. Investors are trying to make decisions today based on how they think tariffs are going to impact company performance, and Coca-Cola has a tariff-resilient model that may even benefit from the new tariffs. Here's why.
Why Buffett loves Coca-Cola
Berkshire Hathaway first bought Coca-Cola stock in 1988, making it the company's longest-held equity position. It bought $1.3 billion worth over seven years, and today, it's worth more than $29 billion, accounting for 10.7% of the total equity portfolio.
But that doesn't account for what it gets from the dividend, which was $704 million in 2022. Berkshire Hathaway uses that money to fund other ventures in its vast holdings, making it a very lucrative position. He said in 2022 that the dividend was "highly likely" to keep growing, and he used this as an example to demonstrate that "over time, it takes just a few winners to work wonders."
Buffett made his famous quote about holding a stock forever in the 1989 Berkshire Hathaway shareholder's letter, talking about this purchase: "We expect to hold these securities for a long time," he said. "In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever." Buffett has called Coke one of the "best companies in the world" and a "really outstanding business" in addition to praising it in many ways over the years.
How tariffs play into the investing thesis today
Tariffs do not affect every public company in the same way, as they have suppliers and operational bases in countries across the world. As a global company, you might imagine that Coca-Cola would be highly affected by the new tariff program, but it's just the opposite.
In the fourth-quarter earnings update, CEO James Quincey addressed the potential impact of tariffs on Coke's business, as it was just being spoken about as a possibility at that time. Tariffs on aluminum, which affect canned products, were some of the major changes. He explained that the company has hedging programs in place to manage supply in general, shielding it from a significant impact, and that it has an equation for bringing all the operational pieces together to manage smoothly.
He also explained that for the majority of products and countries, production is local, so it's less susceptible to the impact of tariffs or trade wars. He discussed the potential effect of tariffs:
"It's not insignificant, but it's not going to radically change a multibillion-dollar US business. And packaging is only a small component of the total cost structure. ... It's a cost. It will have to be managed. It would be better not to have it relative to the US business, but we are going to manage our way through."
But there's even more. Since most of its operations are local, it makes its concentrate for its U.S. drinks domestically, and those aren't subject to tariffs. According to The Wall Street Journal, competitor PepsiCo makes most of its concentrate in Ireland, where it has a tax advantage. Coke also has operations there for global concentrate production. If PepsiCo has to raise the prices of its beverages to account for the tariff costs, Coca-Cola could win more market share.
Coca-Cola's famous dividend
That's another reason Coca-Cola looks like a fabulous buy today. It has developed a model that's both global and local, which generally creates efficiencies that strengthen the bottom line. Today, you can see a new advantage to that setup.
And the famous dividend, which was just raised for the 63rd time consecutively, is another way Coca-Cola stock protects your funds, regardless of what's happening in the markets.
Coca-Cola may not be a growth stock, but it's demonstrating its value. If you have $1,000 to invest and are looking for a secure stock, Coca-Cola is an excellent candidate.
