Berkshire Hathaway’s Coca-cola 1988 to 2024 - 2025-02-05
Warren Buffett's investment in Coca-Cola began in 1988, with further purchases in 1989 and 1994, which he purchased via Berkshire Hathaway. By the end of 2024, the market value of his Coca-Cola holdings, combined with total dividends received, reached a staggering US$36.33 billion (US$36,332,771,000). Below are the purchase history and dividend.
I will using weighted CAGR to calculate the compounding return for the period, so the average year from 2024 is 33.67:
To calculate the annualized return, we use the following formula: (Ending Value / Initial Investment)^(1 / average number of years) - 1. In Buffett's case, this translates to: (36,332,771,000 / 1,298,900,000)^(1 / 33.67) - 1 = 10.40%.
It's important to note that this calculation doesn't account for taxes or dividend reinvestment. Including these factors would result in an even higher return than 10.40%.
Due to stock splits, the average cost per share has decreased significantly from US$41.80 to US$3.25. Remarkably, in 2002 alone, the total accumulated dividends collected (US$1.31 billion) exceeded the initial investment cost (US$1.298 billion). By 2024, the total dividends received had reached US$11.632 billion, a remarkable 8.95 times the initial investment!
Coca-Cola has consistently increased its dividend payments each year, even after stock splits. In 2024, the dividends collected totaled US$784 million, representing 60.36% of the initial investment. This impressive return demonstrates the power of long-term investing and dividend growth, effectively returning 60 cents for every dollar invested.
Compounding Increment of Dividend
Coca-Cola's dividend growth is truly remarkable. Over 37 years, it has soared from US$17 million to a staggering US$784 million for Berkshire.
Focusing on the period from 1994 to 2024, the dividend increased from US$78 million to US$784 million. This represents a compound annual growth rate of 7.592%, calculated as: (784 / 78)^(1/31) - 1 = 0.07592 or 7.592%. This demonstrates the power of compounding over the long term, with Coca-Cola consistently increasing its dividend payouts over the past 31 years.
The long lasting quality of Coca-Cola
One key factor in understanding Warren Buffett's investment in Coca-Cola lies in the company's history. During the rollout of "New Coke," the company faced significant backlash, causing its stock price to plummet. This presented a valuable opportunity for Buffett.
Coca-Cola's business model is elegantly simple. They sell concentrated syrup to bottlers, who then handle the bottling and distribution. This structure minimizes Coca-Cola's capital expenditure on manufacturing facilities, freeing up capital for what they do best: advertising and brand promotion. Bottlers handle the significant investment in machinery.
Buffett has highlighted a crucial element of Coca-Cola's success: the "taste of memory." This refers to the refreshing quality of Coca-Cola that prevents taste fatigue. Unlike some flavors that linger and become less appealing with repeated consumption, Coca-Cola's taste remains consistently enjoyable. This encourages repeat purchases, driving strong and sustained demand over time. The relatively low and stable price of Coke over the years has also contributed to its widespread appeal.
Low cost manufacturer
Coca-Cola's commitment to low-cost manufacturing is a cornerstone of its enduring success. The company has maintained remarkably low prices for its products over an extended period.
Warren Buffett recalls purchasing Coca-Cola for 5 cents in 1936. As of February 5, 2025, a 24-pack of 12-ounce Coca-Cola cans on Walmart's website is priced at US$14.38, which translates to roughly US$0.599 per can. With a discount, a 12-pack costs US$6.98, or US$0.581 per can. For simplicity, let's use US$0.59 per can. (The can size in 1936 is unknown. If you have information on that, it would be helpful.)
Using the compound annual growth rate formula, we can calculate the price increase over these 88 years: (0.59 / 0.05)^(1/88) - 1 = 0.001882, or 0.1882%.
This incredibly low price increase over nearly nine decades is astounding.
According to in2013dollars.com, US$1 in 1936 has the same buying power as approximately US$22.56 in 2024. The compound annual inflation rate is: (22.56 / 1)^(1/88) - 1 = 0.036, or 3.6%.
Remarkably, Coca-Cola's price increases have significantly lagged behind general inflation, effectively defying the trend.
What if Berkshire doubled the purchase price of Coca-Cola?
Warren Buffett and Charlie Munger have emphasized that with quality investments held for the long term, returns can be very rewarding even if pay a higher price. Let's explore this by considering a hypothetical scenario: What if Berkshire had paid double their initial investment for Coca-Cola, totaling US$2.597 billion? Would the returns still be compelling?
Using the same formula for calculating the Compound Annual Growth Rate (CAGR): (Ending Value / Initial Investment)^(1 / Number of Years) - 1, and assuming the same ending value of US$36.33 billion after 33.67 years, the CAGR would be: (36,332,771,000 / 2,597,800,000)^(1/33.67) - 1 = 8.15%.
Even with double the initial investment, the return remains impressive. For every dollar invested, the final value (including dividends) would be approximately US$13.99, nearly 14 times the original investment. It's important to remember that this calculation doesn't include the benefits of dividend reinvestment, which would further enhance the overall return.
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