Famed investor Warren Buffett recently said there are three stocks he doesn't plan to ever sell. The favored trio is Coca-Cola (KO -0.19%), American Express, and Apple. Berkshire Hathaway sold some Apple around the time he said this, but it remains his largest holding by far, accounting for 24.8% of the entire equity portfolio, and American Express is now in the No. 2 spot, accounting for 15.3%.
Coca-Cola has always made up a hefty percentage of Berkshire Hathaway's holdings, and today it stands at 8.4%. Buffett owns 9.3% of all Coca-Cola stock, and he has raved about Coca-Cola on many an occasion. It hasn't really been a market-beating stock for a while, but it's still a stock many investors should consider buying and holding forever. Here's why.
Quenching thirst around the world
Buffett may be the most-followed investor on the planet, but he has a unique way of investing in the stock market. He likes to call himself a business-picker, not a stock-picker. He believes in the American story, and he chooses businesses that are part of its future.
Consider his most recent purchases: Domino's Pizza and Pool Corp. These aren't the flashy tech or artificial intelligence stocks (AI) that are catching everyone else's attention today, but companies that are underpinned by robust demand and long-term potential.
Coca-Cola might be the epitome of this approach. It services millions, and maybe even billions of customers worldwide, with massive reach and an unmatched distribution system. It has a place on almost anyone's table, and it's available in all kinds of forms and buying formats.
It has brand power and pricing power, and it has earned consumer loyalty through its strong brand and relationship-building. Buffett praises its worldwide brand, saying that it "travels," and it meets a critical human need.
In fact, when Buffett made his famous quote about his favorite holding period being forever, it was in 1988 and he was talking about his new investment in Coca-Cola stock. He said, "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."
He followed that up by noting that famed money manager Peter Lynch said that when investors sell great stocks to take profits but hold onto disappointing ones, it's like "cutting the flowers and watering the weeds."
The difference is the dividend
Berkshire Hathaway purchased $1.3 billion worth of Coca-Cola stock between 1988 and 1994. Not only has it increased in price, but it has been especially lucrative due to its dividend. Berkshire Hathaway had $704 million in dividends from Coca-Cola in 2022 alone.
Coca-Cola is a Dividend King, and it has raised its dividend annually for the past 62 years. That's one of the best track records on the market, and it means Coca-Cola has come through with a raise under all sorts of conditions, including market crashes, recessions, and more. It has done so even when it meant its payout ratio, or the amount of earnings it pays as dividends, went over 100%. At the current price, Coca-Cola's dividend yield 3.1%, or more than double the S&P 500 average.
Since the time Berkshire Hathaway finished buying Coca-Cola stock, though, it has sorely underperformed the market, dividend included.
But Buffett is still a huge fan. The dividend provides cash Berkshire Hathaway can use throughout its business, making it a key strategic partner in growing the whole business.
There are benefits for individual investors besides passive income. Coca-Cola is an anchor stock, and it typically provides stability when there's market volatility. Over the past three decades that Buffett has owned it and that it has underperformed the market, there have been pockets of outperformance, usually when the market is down.
Having a few Dividend Kings is a way to protect your portfolio with stocks that are likely to be around through thick and thin. Buffett expects Coca-Cola to be around forever, playing an important role in the economy, making it an excellent choice to stabilize an individual investor portfolio.
