The wealth-building power of compound interest will never cease to amaze me. It's a story of patience and attention to detail, where small, short-term differences add up to massive divergence over decades. And in the end, the biggest winners don't always deliver the fattest share-price returns.
Soft-drink veteran Coca-Cola (NYSE:KO) most definitely fits that description. Sure, Coke stock has beaten its peers on the Dow Jones Industrial Average (DJINDICES:^DJI) over the last five years without accounting for dividend boosts, but those payouts make a huge difference in the magnitude of your winning returns.
Reinvesting Coke's dividend checks along the way would have turned a respectable 42% return into a market-crushing 66% jump. For those keeping score at home, that's a 54% higher return on your five-year investment. It's hard to say no to investment boosts like that, isn't it?
Cash flows through Coke's operations like its sugary syrup flows through a soda fountain. And the company is not shy about returning cash to shareholders. Coca-Cola increases its annual payouts like clockwork, and with a far heavier hand than sector rival PepsiCo (NASDAQ:PEP). That's the secret recipe for market-beating long-term returns.
Throw in the fact that it's been more than two years since Coke missed an earnings target, and it's easy to see why investing guru Warren Buffett loves this stock. Coke is the kind of share you can buy once and forget about entirely (except when the quarterly dividend checks roll in, of course). Then you can reap the rewards decades later -- and never lose any sleep over the business performance.
The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.