Coca-Cola Co (NYSE:KO) has long battled its rival Pepsi for dominance in the soft drink market. One of its biggest wins in this war was attracting the attention of billionaire investor Warren Buffett. The Oracle of Omaha famously drinks 5 cans of Coke per day and serves it at his shareholder meetings.
He spent 50 years preferring Pepsi, until an old neighbor approached him in 1985. Twenty-five years earlier, Buffett asked coffee salesman Don Keough for a $10,000 investment and he balked. In 1981, Keough became President and COO of Coca-Cola.
Finally Buffett switched his taste preference and his investment capital to the iconic Coke brand, which invites the question, does Berkshire Hathaway own Coca-Cola?
When Keough read about Buffett’s affection for Pepsi, he sent him samples of Cherry Coke. By 1988, Buffett was sold on more than the product. He started a long-term investment strategy in Coca-Cola as a company, starting with a purchase of $1.3 billion in the company’s stock.
We pop the top on a Coke to determine if it’s still a sweet deal for modern investors.
How Buffett First Made Money From Coke
Coca-Cola is the third-largest investment in Berkshire Hathaway’s portfolio in 2021. It started not long after the stock market crash of 1987. At that time, the company was selling for a sweet discount that Buffett couldn’t pass up.
He understood the global market value of the company’s iconic branding; it is still the one of most valuable brands in the world.
The company changed Buffett’s investment philosophy into what it is today. Instead of buying bad companies at great prices, he started buying great companies at good prices. And because Coke stock split and paid dividends, the Oracle of Omaha increased his investment by over 1500 percent.
Apple (AAPL) and Bank of America (BAC) are the only companies Berkshire holds more stock in. At the time he invested, Coke traded under $5 per share. It now trades at over $50 per share, with an annual dividend yield of 3.01 percent.
Coke stock did 2-for-1 splits in 1990, 1992, 1996, and 2012. Berkshire Hathaway (BRK.B) now owns 400 million shares in the company representing a 9.3 percent stake. Its value is over $21 billion of this $230 billion company at the start of 2021.
And the company raised its quarterly dividend from $0.40 to $0.41 in 2020, giving Berkshire an annual revenue stream of $656 million, a year-over-year increase of $16 million.
Why Did Berkshire Buy Coca-Cola?
Warren Buffett loves dividend stocks, but that’s only one part of the story of how he got involved with the company. His personal relationship with Keough and the Coca-Cola brand and business model gave him confidence in the company.
The Berkshire CEO is a notorious stickler for business fundamentals and growth. He’s a firm believer in long-term holdings. There’s no point in buying a company just to sell it (the cost of paying taxes regularly is enormously detrimental to long-term gains) – he looks for businesses that have the fundamentals down and can scale to serve larger customer bases.
Coke is that company and brand. After a debacle with New Coke in the late 20th Century, it returned to Coke Classic and increased efficiency throughout its supply chain. As the world moved to a digital age, Coca-Cola did too, investing in computer-assisted ways to drive revenue growth.
In the 2010s, it joined the fourth industrial revolution by pushing into artificial intelligence platforms that can track and predict sales in vending machines, c-stores, restaurants, and other sales channels.
The company’s optimization was on full display during the pandemic’s panic shopping sprees. While other aisles were empty, Coke’s independent distribution system easily filled shelves with its product roster.
Of course, sugary drinks are falling out of fashion, leaving some to wonder if Buffett will ever sell his Coke shares.
Does Berkshire Hathaway Own Coke?
Although Berkshire Hathaway owns an impressive 400 million shares of Coca-Cola, it represents “just” 9.3 percent of the total stock. This does make it the biggest investor in the company, though. The Vanguard Group is in second, owning just under 300 million.
You would think he owned the entire company as much as Buffett drinks and pushes the stuff though. He infamously drinks up to 5 cans of Cherry Coke every day and gives it out freely in shareholder meetings.
That being said, the Buffett Effect is in play with this company. Should it ever unload its shares (or even a significant portion), it will likely signal a bear run on the stock as investors rush to follow his lead. It’s what happens on the other side of companies being inflated by Berkshire’s investment selection.
It happens because the firm owns so many shares.
How Many Shares of Coca-Cola Does Berkshire Own?
Berkshire Hathaway owns 400 million shares in Coca-Cola. Institutional shareholders like Berkshire own a total of 67.96 percent of the company. It’s also a popular investment among mutual funds due to being a component of the S&P 100 and S&P 500.
Still, the massive stakes from four large firms are more than for a typical company. Besides the two mentioned, BlackRock Fund Advisors, SSgA Funds Management, Fidelity, and Charles Schwab all have significant holdings in Coca Cola.
These firms all trade heavily in the stock each year though. Meanwhile, Berkshire’s holdings have remained steady for over 25 years now. Buffett loves long-term plays. If this sleep giant were to ever sell Coke, it could be a bad sign for the KO share price.
Just ask Wells Fargo management and stakeholders.
Does Berkshire Own Coke Shares: The Bottom Line
Berkshire Hathaway is Coca-Cola’s largest investor but still owns less than 10 percent of the company. It held this stake since Buffett first started buying it in 1988 after the stock market crash made it an enticing deal too good to pass up. Since then, Berkshire’s stake has increased to 400 million shares worth over $21 billion.
The stake generates over $650 million in annual income, making it more profitable than most businesses. At that rate, Buffett earns back his initial investment every other year. He’s not called the Oracle of Omaha for nothing.
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