Warren Buffett’s Berkshire Hathaway just received a dividend check for $168 million dollar from Coca-Cola.
Berkshire Hathaway's Stake In Coca-Cola
Berkshire Hathaway owns 400 million shares of Coca-Cola (NYSE:KO), which are projected to generate $672 million in annual dividend income.
At the end of last week, Bruce Greenwald, the founding director of the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School, sat down for a Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital as part of the 13th Columbia China Business Conference. The chat spanned many different topics, Read More
This comes out to roughly $1.841 million in dividend income per day, $76,712 dollars in dividend income per hour, $1278 dollars in dividend income for Berkshire Hathaway every minute, or almost $21.31 every single second.
Those shares have a cost basis of $1.29 billion dollars, and were acquired between 1988 – 1994. This comes out to $3.25/share. The annual dividend payment produces an yield on cost of over 51.70%. This means that Berkshire receives its original cost back every other year in dividends alone, while still retaining full ownership of its shares. This is why I believe that Warren Buffett is a closet dividend investor.
Since 1994, Buffett has received $21.45/share in total dividend income from Coca-Cola.
That is $8.580 billion in dividend income, against a total cost of $1.299 billion, which was allocated to buy stakes in other businesses and shares.
His Coca-Cola stock is worth $21.216 billion. Given the fact that Coca-Cola has also repurchased stock over the years, it also means that his ownership in Coca-Cola has increased over time, without adding a single dime.
The Power Of Long-Term Dividend Investing
This is a testament to the power of long-term dividend investing, where time in market is the investors best ally, not timing the market. If you can select a business which is run by able and honest management, which has solid competitive advantages, and which is available at a good price today, one needs to only sit and let the power of compounding do the heavy lifting for them. As Buffett likes to say, time is a great ally for the good business. In the case of Coca-Cola, the past 33 years have been a great time to buy and hold the stock. The company has been able to tap emerging markets in Eastern Europe, Asia, Africa and Latin America like never before. As a result, it has been able to receive a higher share of the worldwide drinks market, which has also been expanding as well. If you add in strategic acquisitions, new product development, cost containment initiatives and streamlining of operations, you have a very powerful force for delivering solid shareholder returns. With dividend investing your are rewarded for smart decisions you have made years before.
If they closed the stock market for a period of 10 years, Buffett would still be earning steady cashflow from his investment in Coca-Cola. This is because ten years from now, the company would likely be earning more than what it is earning today, and would likely be distributing more in dividend income than it is paying to shareholders today. Receiving a huge dividend check every three months is a reminder that you are a shareholder in a real company with real products that are consumed by billions of consumers worldwide. The stock is not a lottery ticket but a partial ownership in a company, which entitles you to a share of the profits being paid out to you as a shareholder in the form of dividends.
At the end of the day, if you identify a solid business, that has lasting power for the next 20 – 30 years, the job of the investor is to purchase shares at attractive values, and hold on to it. This slow and steady approach might seem unexciting initially, but just like with the story of the slow-moving tortoise beating the fast moving hare, the power of compounding would work miracles for the patient dividend investor.
Buffett's Investment In Coca-Cola
In the case of Warren Buffett's investment in Coca-Cola, he is able to recover his original purchase price in dividends alone, every two years. Even if Coca-Cola goes to zero tomorrow, he has generates a substantial returns from dividends alone, which have flown to Berkshire's coffers, and have been invested in a variety of businesses that will benefit Berkshire Hathaway's shareholders for generations to come.
Currently, Coca-Cola is selling for 24.70 times forward earnings and yields 3.17%. This dividend king has managed to increase dividends for 59 years in a row.
There are only 29 companies in the entire world which have gained membership into the exclusive list of dividend kings. Over the past decade, Coca-Cola has managed to increase dividends by 6.40%/year, equivalent to dividend payments doubling every eight and a half years. This is much better than the raises I have received at work over the past decade, despite the fact that I have routinely spent 55 - 60 hour weeks at the office.
Full Disclosure: Long KO and one share of BRK.B
- Coca-Cola: A wide-moat dividend growth stock to buy and hold
- Warren Buffett Investing Resource Page
- Seven wide-moat dividends stocks to consider
- Warren Buffett’s Dividend Stock Strategy
- The importance of yield on cost
Article by Dividend Growth Investor