Berkshire Hathaway benefits from a 63% dividend yield on Coca-Cola stock.
Coca-Cola's new investor dividend yield is twice the average dividend return of the S&P 500.
Berkshire has not purchased other Coca-Cola stocks in 31 years.
10 Better Stocks than Coca-Cola›
Investors often look for ways to make stock portfolios more immune to recession. To do this, they may study Warren Buffett's investment philosophy.
although Berkshire Hathaway' (NYSE: BRK.A) (NYSE: BRK.B) Recession strategy may focus on the company's liquidity of about $348 billion, and Buffett continues to hold a large amount of stocks, part of which could revolve around such as stocks. Coca Cola (NYSE:KO).
Nevertheless, Buffett and his team first started buying Coca-Cola stocks in 1988, and Berkshire has not bought any additional Coca-Cola stocks since 1994. Let's take a closer look.
Admittedly, people may feel tempted to follow Berkshire's lead. Buffett has invested less than $1.3 billion in six years. At that time, the subsequent stock split raised Berkshire's Coca-Cola position to 400 million shares, worth about $28.8 billion.
Furthermore, this does not include dividend income earned at that time. This dividend has increased for 63 consecutive years, making the company the dividend king. These increases raise spending to $2.04 per share.
The 37-year dividend rise means Berkshire's Coca-Cola stock will receive a dividend of $816 million this year. This brought Berkshire's annual dividend yield to around 63%, which could prove the recession in the Buffett case.
Coca-Cola may also look attractive in a recession environment. Drinks, especially water, are necessary for survival. Coca-Cola soft drinks or Topo Chico Hard Seltzer may attract consumers who can't afford more expensive luxury goods during the recession.
Unfortunately, for those who wish to buy now, Coca-Cola's investment case may give investors the reasons why Berkshire has not bought additional stocks in 31 years.
First, at current prices, the dividend yield for new investors is about 2.75%. This is twice the average company earnings of 1.35% in the company S&P 500 index. However, if investors want to surpass the index, they must rely mainly on stock price increases.
Indeed, its growth has not ended soon. Coca-Cola has over 200 beverage brands, and even if its flagship brand has reached global saturation, the company can still increase consumption of its products.
However, this situation does not guarantee a rise in stock prices. In 2022, Coca-Cola's inventory peaked and entered the corrections sector, and it took two years to return to its all-time highest. Although the stock has grown 15% over the past year and 61% over the past five years, the recession has disrupted that growth.
In addition, its price-to-earnings ratio is 29, slightly higher than the 27 of its five-year average income. Analysts forecast revenue growth of 3% this year and 8% in 2026, and the stock appears to be high at current levels. This could make it vulnerable in the recession at least in the short term.
In the current environment, it may not be possible to follow Buffett's team into Coca-Cola stocks to prevent a recessionist portfolio.
Coca-Cola is an ostensibly recession-resistant stock because consumers are likely to buy their drinks regardless of the economic situation.
However, Berkshire Hathaway telegram said Coca-Cola was held rather than purchased. Coca-Cola has raised its dividend for 63 consecutive years, with rising dividend yields almost meaningless. Nevertheless, Berkshire has not reinvested the dividend income of Coca-Cola stocks.
In addition, for unit percentage stock growth, 29 price-to-earnings ratios are not cheap. If the stock market conditions worsen, this makes it more susceptible to selling.
Making your stock portfolio resists recession is an ideal goal, especially for shareholders who are reluctant or unable to take significant risks. Still, Berkshire's investment history in Coca-Cola shows that it may not provide the downturn protection some investors are looking for.
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Will Healy holds a position at Berkshire Hathaway. Motley fool has a place and recommends Berkshire Hathaway. Motley Fool has a disclosure policy.
Following Buffett’s leader, are staples like Coca-Cola the secret to a recession-proof portfolio? Originally published by Motley Fool