Coca-Cola (KO 1.04%) is an iconic consumer staples giant. The stock has long been a holding in Warren Buffett-run Berkshire Hathaway's (BRK.A -0.17%) (BRK.B 0.15%) stock portfolio, which is a huge vote of confidence in the business.
Right now, there are a couple of very compelling reasons to buy the stock like there's no tomorrow. And, at the same time, investors need to understand what they are paying for.
What does Warren Buffett buy?
To simplify Warren Buffett's investment process, he tends to buy well-run companies when they are attractively priced. Then he holds them for the long term, so he can benefit from a company's growth over time. Simple in theory, complicated in practice.
Berkshire Hathaway initially acquired Coca-Cola shares between 1988 and 1994, and it last purchased Coca-Cola stock in 1994. Berkshire owns about 400 million shares of Coca-Cola, and it has been one of the holding company's big winners. Berkshire Hathaway receives $816 million annually in dividends from its Coca-Cola stock, which it paid roughly $1.3 billion at the time to own.
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Even today, long after Buffett first bought Berkshire's shares, Coca-Cola remains an industry leader in the beverage sector. It has a diversified portfolio, a global reach, strong R&D chops, and the wherewithal to act as an industry consolidator. However, it also happens to be doing very well as a business at the moment.
In the first quarter of 2025. Coca-Cola's organic sales growth chimed in at 6%. That compares to just 1.2% for PepsiCo, one of its most significant competitors. There are more details here, of course, but the big picture is what's important. Coca-Cola is hitting it out of the park, relatively speaking.
That fact rests atop an incredible performance record on the dividend front. Coca-Cola is a Dividend King with over six decades of annual dividend increases behind it. That doesn't happen by accident, and the strong performance that the consumer staples giant is exhibiting today is a testament to how it managed to enter the elite ranks of the Dividend Kings.
If you are looking for a well-run consumer staples company, it is hard to ignore Coca-Cola. But there's one small problem. Wall Street is well aware of the company's success, both historical and present.
Buffett bought Coca-Cola a long time ago
Going back to Buffett's investment approach for a second is important. The Oracle of Omaha tends to buy well-run companies when they are attractively priced. Coca-Cola is well run, but is it attractively priced?
Data by YCharts.
There are different ways to look at valuation. One of my favorites is dividend yield, which isn't a metric traditionally used for valuation. Coca-Cola's yield is currently around 2.9%. That's at the low end of its yield range over the past decade as well as its average, hinting that the stock may be expensive.
Data by YCharts.
That view is backed up by the fact that Coca-Cola's price-to-sales, price-to-earnings, and price-to-book value ratios are all near or above their five-year averages. All of those metrics are more traditional valuation tools. While it wouldn't be fair to suggest that Coca-Cola is shockingly overpriced, it also wouldn't be appropriate to say investors are buying it at bargain-basement levels.
You are paying up for quality
At best, you could say that Coca-Cola is fully priced, though it is probably a little expensive. There's no reason that you can't buy it and, over the long term, make out well owning it. Just go in knowing that it might take you a little while to see material gains, given the current valuation levels. That means if you buy it, you need to go in thinking in decades, like Buffett, so you can benefit from the long-term growth of Coca-Cola's business. Make sure you're willing to do that if you plan to back up the truck here.
