1 No-Brainer Warren Buffett Stock to Buy Today

According to billionaire investor Warren Buffett, achieving excellent returns as an investor is mainly about buying wonderful businesses and holding them for many, many years. The CEO of Berkshire Hathaway has trounced the S&P 500 over decades using that approach, creating many millionaire shareholders in the process.

One of Buffett's favorite stocks is a consumer staples company that already enjoyed a dominant market position when he bought shares in the early 1990s. By 1994, Berkshire had accumulated 400 million shares of the company for a total outlay of $1.3 billion. That investment has grown into one of Buffett's biggest portfolio holdings and now returns over $700 million in annual dividend income alone.

The stock in question is Coca-Cola (NYSE: KO). Although the soda giant's growth prospects aren't as strong today as they were 30 years ago, it's still an attractive buy for investors. Let's look at some reasons why you might want to follow Buffett into this holding.

Sparkling growth

Few consumer staples giants are expanding sales at a double-digit clip today, but Coke is one of the rare exceptions. The chain reported an 11% organic sales spike in late April, keeping growth about steady with the previous quarter. For context, PepsiCo announced just a 3% uptick.

Coke is faring better than its rivals, mainly thanks to competitive advantages like its massive scale, marketing prowess, and exposure to a wide variety of growth niches including energy drinks, teas, and waters. These factors have helped keep Coke on top of its industry, even while consumers have become more cautious in their spending habits.

"We believe our global system is primed for sustained success," CEO James Quincey said in a late-April press release.

Cash returns

In a recent letter to shareholders, Buffett said dividend income is the "secret sauce" that has helped power his market-thumping returns over the years. His Coke holdings delivered $75 million in annual income in 1994 when Berkshire completed its purchases of the stock. And now, that income has grown to over $700 million a year, simply through the beverage giant's steady annual raises. "We expect those checks are highly likely to grow," Buffett said.

KO Cash from Operations (TTM) Chart

KO Cash from Operations (TTM) data by YCharts.

Coke's most recent 5.4% dividend hike pushed the quarterly payout to $0.49 per share from $0.46 per share. That mid-February increase was the company's 62nd consecutive annual boost. Strong cash flow and rising earnings mean there's plenty of room for the company to keep increasing its dividend in 2025 and beyond.

The price is right

Even the best business won't make a great investment if the stock price is too high when you purchase it. The good news is that investors don't face much risk here. Coke's shares have underperformed the market in the past year, falling 3%, while the S&P 500 has gained 25%. You can own Coke for a relative steal of 6x sales, down from a valuation of over 7x sales through most of 2022.

It's true that you can find faster sales growth outside of Coca-Cola's consumer staples industry. But the stock delivers a balance between growth, cash returns, and profitability that's hard to find on the market. Toss in the fact that the beverage specialist is trading at an attractive price and delivering an instant 3% dividend yield, and this stock seems like an obvious candidate to have near the top of your investing watchlist.

Should you invest $1,000 in Coca-Cola right now?

Before you buy stock in Coca-Cola, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Coca-Cola wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $550,688!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of May 6, 2024

Demitri Kalogeropoulos has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.