Things go better with Coke - would you like some?
In 1988 Warren Buffett invested $592,540,000 in Coca Cola quickly topped up to $1.3bn, finally ending up with 400m shares. Without unpicking Berkshire Hathaway’s accounts, the average price he paid, adjusting for the numerous stock splits, was around $3.25 per share.
What is accurate is that he/they now own 400 million shares in Coca Cola, or 9.4% of that company. As a result, on the 15th March of this year he received a payment of $168,000,000 from Coca Cola. In cash. It’s a quarterly dividend.
Coca Cola have paid a quarterly dividend since 1920, without fail.
In the interim years, we had the 1929 crash (sales up 13%, profit up 25%), then WW2, Vietnam, the oil crisis, 1987, the tech crash, 2008, COVID et al.
Having first paid a dividend in 1893, the company has increased its dividend every year for the last 59 (1962).
Going back a year, on 15th December 2020 Mr. Buffett received $164 million in cash from Coke, then ninety days later another $168 million, then…you get the picture. Coke pays its dividends quarterly, and in the last 5 years - including 2020 - it increased its payments to shareholders by 2.4%, 2.6%, 5.4%, 5.7% and 6.1%.
In the last two years Coca Cola have paid out to Warren Buffett every penny of what he spent to buy the shares in the first place.
Warren Buffett spent $1.3 bn in capital and now receives $672 million per year in cash from Coke – that’s a 52% return in cash, without selling a single share.
The value of his Coke stock is c$22.3 billion, of which $21 billion is profit – an increase of 15x in 29 years
His annual rate of growth on the share price is 9.8%.
His annual rate of growth on the dividends is 10.7%
His yield to cost of the shares is 52%.
In 2035, it is projected that his annual dividend from Coke will be more than he paid for the shares in the first place.
We don’t think Warren Buffett really cares about the share value of his Coca Cola shares. Why would he ever want to sell them?
Q. Berkshire Hathaway paid cash for their Coke shares from their investment account: debit $1.3bn cash, credit $1.3bn shares. Every year the dividend cash is credited to that investment account so the $1bn cash debit is repaid by Coke itself. Once Coke had repaid the $1bn in cash, into the investment account the debit balance had gone, the shares were then held at nil cost to their cash. The repayment took 15 years: - what then is Berkshire Hathaway’s yield to their investment cost?
Coke is not Buffett’s largest holding, nor his largest divi payer; his top 3 stocks actually paid cash income last year of $2.16 billion – and that was during the COVID lockdown:
Apple paid him $744,199,004
Bank of America paid him $743,653,444
Coca Cola trailed in at $672,000,000
People like Coke, and people admire the cheery face of Warren Buffett, so this is a great example to demonstrate how we invest – we just use investment trusts to do for us what Coke does for Buffett. Would you like some?