Why Warren Buffett's Successor Will Keep Coca-Cola Shares in the Berkshire Portfolio

When Greg Abel took over the management of Berkshire Hathaway from Warren Buffett at the end of last year, many investors wondered how he would choose to manage the famous investment portfolio. Abel did not waste time and rushed to sell some of the company's consumer stocks, including Amazon and Domino's Pizza. Despite these changes, there is one long-standing stock that Abel will almost certainly not touch: the beverage giant Coca-Cola.

The numbers behind Coca-Cola's dividend

The main reason for the intention to hold the stock is its dividend. This year, Coca-Cola shareholders will receive an annual dividend of $2.12 per share. For a new investor, this is a modest yield of 2.4%, but for Berkshire, the picture is completely different. The company acquired its 400 million shares between 1988 and 1994 for only about $1.3 billion, and it is now enjoying the fruits of growth that has lasted for decades.

Thanks to the early purchase, Berkshire is expected to receive $848 million this year just from Coca-Cola's dividend payments. This amount reflects an incredible dividend yield of 65% on its original investment cost. This is a figure that makes holding the stock too profitable for Berkshire to consider selling it, especially given the fact that Coca-Cola is a "dividend king" that has increased its payment for 64 consecutive years.

Challenges for the beverage giant and the change in trend

However, the decision to continue holding the stock is not a given. Over the last decade, Coca-Cola's stock has significantly lagged behind the S&P 500 index. The company has reached maturity and its growth has slowed, relying mainly on price increases. At the same time, the company is facing a trend where many consumers are moving away from its flagship drink and looking for healthier alternatives, which forces it to adapt its beverage offerings.

Despite these challenges, in the last year, Coca-Cola's stock has outperformed the S&P 500 index. The company has shown a strong ability to raise prices, and its shift to healthier drinks across its variety of brands has helped increase revenues. For Abel, who understands well the power of brand loyalty and the value of a stable dividend yield, Coca-Cola is expected to remain a key anchor in Berkshire's portfolio for many years to come.