This single position generates over $800 million in annual income for Berkshire Hathaway.
Demand for this company remains resilient in difficult economic conditions, something investors might appreciate today.
The stock’s rise in recent memory can provide clues as to its potential going forward.
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Besides the operating businesses that it fully owns, Berkshire Hathaway also has a massive $281 billion equities portfolio. Investors pay close attention to the companies here, as they could present potential buying opportunities.
There’s one dominant business that Warren Buffett is undoubtedly a huge fan of, as evidenced by his conglomerate owning 400 million shares currently worth $29 billion. This single company represents 10% of Berkshire’s portfolio.
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Quenching Buffett’s thirst is none other than Coca-Cola (NYSE: KO). Berkshire has held a position for quite some time. Those 400 million shares are a boon. Because the beverage giant pays a dividend that has increased in 63 straight years and that yields 2.86%, Berkshire brings in $816 million in annualized income. No one will have an issue with this passive flow of money that requires zero effort.
In total, Coca-Cola spent $8.4 billion just on dividends in fiscal 2024. This is a gargantuan sum that only very profitable companies can handle. In the past three years, Coca-Cola’s net profit margin averaged 23%, which is superb. I’m sure there is no shortage of businesses that wish they had that kind of bottom-line performance.
There’s no sugarcoating it. Today’s economic environment doesn’t really give investors reasons to be very optimistic. There is an ongoing trade war between the U.S. and its trading partners that makes things uncertain. Credit card delinquencies are close to a 10-year high. And consumer sentiment is at a low. Understanding the current backdrop might make investors want to add some stability to their portfolios.
Here’s where Coca-Cola might look very interesting. It possesses a sustainable competitive advantage in its brand. Being the market leader with over 200 different drink brands that are offered in every corner of the world helps it achieve unmatched visibility and consumer mindshare. It also helps that Coca-Cola is a master when it comes to marketing and getting its message across, an expression that emphasizes happiness when consuming its beverages.
As a result, the business has historically been able to flex its pricing power, even in economic scenarios that aren’t exactly robust. During the first quarter, volume was up 2%. But pricing and mix had a positive 5% impact. Coca-Cola could probably raise its prices indefinitely, within reason, and not lose customers thanks to their loyalty to the brand.
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