Warren Buffett's incredible track record allocating capital for Berkshire Hathaway makes him a legend. For the average investor, following the conglomerate's portfolio to find potential ideas is a smart use of time.
In Berkshire's massive $277 billion portfolio, one well-known consumer brand is currently the third-largest position. There's no doubt that investors are familiar with this business, as it's been around for over a century.
If you invest $1,000 in this top dividend stock, could you become a millionaire one day?
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Generating sizable income for Berkshire
Berkshire has a stake in numerous companies. However, it owns a whopping 400 million shares in Coca-Cola (KO 0.48%), giving it control of 9.3% of the beverage giant. Berkshire has been a shareholder for decades, which highlights Buffett's appreciation of Coca-Cola.
Coca-Cola currently pays a quarterly dividend of $0.51 that yields 2.84% on a yearly basis. The business deserves a lot of credit for raising the payout for an unbelievable 63 straight years, a track record that investors will probably struggle to find anywhere else. This demonstrates the company's staying power.
This position generates a huge income stream for Buffett. Berkshire rakes in $816 million in annualized income from its stake in Coca-Cola. It's no wonder shares aren't being sold.
Coca-Cola is a high-quality business
It's easy to understand why Buffett likes Coca-Cola's business. For starters, it has one of the world's most recognizable brands. Coca-Cola has a successful history of providing consumers with consistent products that satisfy their thirst. Add to this effective marketing, a truly global footprint with a presence in more than 200 countries, and 2.2 billion servings consumed daily, and it's obvious that Coca-Cola's high visibility is a key part of its success.
What's more, the brand supports ongoing pricing power, a trait Buffett loves. Just in the latest quarter (Q1 2025, ended March 28), the company's sales benefited from a 5% impact from favorable pricing and mix. The fact that customers are loyal to the brand means that Coca-Cola can likely continue to increase prices within reason and not deal with tapering demand.
Coca-Cola is also an extremely profitable enterprise. The company relies on third-party bottlers and distributors to get its products to consumers. This results in a more efficient operating model that helped drive a 32.9% operating margin in Q1.
Another important characteristic that Coca-Cola has that long-term investors should appreciate is its longevity. It seems that the economy is undergoing rapid change these days, thanks to the continuing impact of technology. Coca-Cola simply doesn't invite much in the way of disruption, which means its profits and dividend payouts face minimal threats. This reduces risk.
What investors should expect
In the past 10 years, Coca-Cola has produced a total return of only 137%. This figure includes dividends. That performance is worse than the three stock market indexes, which is discouraging for investors looking to amass serious wealth.
Since the business is so mature with muted growth prospects, it's a good idea to temper expectations. The share price isn't going to skyrocket in the years ahead.
The valuation also isn't cheap. As of this writing, the stock trades at a price-to-earnings ratio of 28.8, above its trailing-five-year average.
The lack of substantial growth prospects, coupled with the elevated valuation, means Coca-Cola won't turn you into a millionaire. But dividend investors might still be interested in adding the stock to their portfolios.
