This Stock Pays Buffett 9-Figure Dividends

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Warren Buffett’s Berkshire Hathaway owns 400 million shares of Coca-Cola (KO) . He makes over $700 million a year from his dividend position alone. 

KO is popular among other financial pros, too. It’s their top nonalcoholic beverage stock search over the last month and has been for the better part of a year. 

With the market as bad as it’s been in 2022, investors have been parking their money in “safe-haven” stocks like KO.  

But sales are softening, and KO is facing inflationary pressures like every other manufacturer.

So how safe is this blue chip?

The Coca-Cola Company’s Business

Coca-Cola is the world’s largest distributor of nonalcoholic beverages. More than half the firm’s revenues come from selling beverage concentrates and syrups. Bottling and beverage sales make up the rest of its revenues. 

KO is one of Warren Buffett and Charlie Munger’s best investments. 

They love the company because of its branding, which allows it to charge a premium for its drinks. 

KO has over 140 different products in its portfolio, including the brands Coca-Cola, Diet Coke, Fresca, Dasani, Minute Maid, Sprite, and Fanta. 

Coca-Cola is an international company, with most of its revenues coming from outside of North America. However, North America is its top-grossing sales region.   

The company faced higher expenses over the last couple of years as aluminum prices and transportation costs skyrocketed. Subsequently, the company increased its prices to offset these pressures and maintain margins.

Financials

KO has struggled to grow revenues over the last several years. 

It made $41 billion in revenues in 2016; in 2021, it did $38.6 billion. 

That could be because there’s been a big push towards less sugary drinks and more competition entering the space. 

However, KO’s revenues have bounced back, and its current 12-month trailing revenues stand at $41.3 million. 

The company credits its recent success to creating better consumer relationships via digital, mobile, and social channels. 

KO has $11.6 billion in total cash and $42.8 billion in total debt. While that might sound scary, the firm’s current ratio is 1.1x. In addition, it pays a handsome dividend of $1.76 per share annually. 

Valuation

KO has a P/E GAAP ratio of 24.9x, which is more or less in line with its competitors. 

For example, PepsiCo (PEP) is at 24.3x, Keurig Dr Pepper (KDP) is at 24.5x, Monster Beverage Corp. (MNST) is at 38.1x, and Nestl é (NSRGY) is at 17x. 

But at a price-to-sales ratio of 5.7x, KO doesn’t measure well against its competitors. PEP is at 2.8x, KDP is at 3.9x, and NSRGY is at 3x. 

This could be because investors view KO as a safe-haven stock, so they’re willing to pay a premium. 

Profitability

KO has a gross profit margin of 58.8%, notably higher than its competitors. In addition, none of the competitors above can match KO’s net income margin of 23.1%. The firm’s operating margin is 28.7%. Moreover, only NSRGY’s $13.7 billion cash from operations beats KO’s $11.6 billion. 

Growth

KO has put its foot on the pedal in the last two years, generating revenue growth of 13.4%. Only MNST, a significantly smaller company, bests that with 16.7%. 

Moreover, KO’s EBITDA growth is 1.5%, while KDP and MNST have negative EBITDA growth. 

Our Opinion 6/10

KO’s dividend yield is especially attractive during this time of heightened uncertainty. The stock has held up relatively well in 2022 and should continue to do so over the next year or so. 

The problem is the company’s size and lack of innovation hamper its growth. 

While we don’t think it’s the most exciting company in the world, it’s the best stock in its category and probably a safe bet in an economic downturn.