Over the years, Warren Buffett has earned his name as one of the best stock pickers ever. But what has been his best investment?
His firm, Berkshire Hathaway, has a portfolio consisting of over 45 businesses, ranging from renowned car manufacturers to packaged foods companies.
I’ve been scouring his portfolio and I think I’ve cracked it.
My choice
In my opinion, it’s Coca-Cola (NYSE: KO). Buffett first invested in the stock back in 1988. Today, he owns 400m shares worth over $24.7bn.
There are a few reasons it stands out to me. Firstly, it highlights perfectly Buffett’s goal to buy companies with moats that can give it a competitive advantage over many years. Coca-Cola is an iconic brand with huge demand. Every day, more than 1.9bn servings are consumed in over 200 countries.
There’s also the income he receives from the investment. Today, Coca-Cola has a 3.1% dividend yield. However, for Buffett, that works out more like 60%.
That’s because he’s set to receive $776m in dividends this year from stock, representing a 59.7% yield on his original $1.3bn investment.
Finally, with it being Berkshire’s longest continuous holding, it also highlights the power of investing with a long-term outlook. Building wealth doesn’t happen overnight. It’s a process that can take decades.
Time to buy?
But just because Buffett has enjoyed vast success with his investment in the stock, does it still make it a company that investors should consider buying today?
I reckon so. As I highlighted earlier, Coca-Cola is a strong brand. And that gives it an edge. For example, look at last year. During a period where inflation wreaked havoc and saw many consumer brands struggle, Coca-Cola managed to grow its revenue by 6% to $45.8bn.
What’s even more impressive about that is the fact it managed to grow revenues largely by upping prices. Total volume of beverages sold only increased by 2%. That highlights the ongoing demand for its products.
There’s also the passive income angle. Not many investors will be dealing with the figures that Buffett plays about with, but there’s still the opportunity to make some extra cash.
Today, £20,000 invested in the stock, assuming its 3.1% yield and that I reinvested my dividends, would leave me with an investment pot of £50,781 after 30 years. That’s not bad.
Granted, there are higher yields out there that could generate more cash over the same period. But Coca-Cola has increased its payout for 62 consecutive years. That’s an astonishing track record.
The risks
That being said, there are a few risks with the investment.
The biggest I see is consumer trends shifting to healthier products. It’s no secret that Coca-Cola products aren’t the healthiest. As society and governments across the globe become more health-conscious, this will have an impact on the business.
The stock also looks on the pricy side, trading on a price-to-earnings ratio of 24.9 and above the S&P 500 average of 23.
Paying the price
But Buffett himself has advocated before that: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
He just targets quality. And with Coca-Cola, I think it offers exactly that.
