Warren Buffett Isn't Selling Coca-Cola Stock, Despite Its Recent Slump. Is It Worth a Look?

Key Points

• Coca-Cola has been one of Warren Buffett's worst-performing major positions in recent years.

• Buffett has held on to all his shares, even as he has sold better-performing stocks from Berkshire's portfolio.

• Buffett likes the dividends and the business, but further growth may prove elusive.

• 10 stocks we like better than Coca-Cola ›

Legendary investor Warren Buffett has made some surprising moves during his tenure at Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B).

One of these moves was buying Apple (NASDAQ: AAPL) stock in 2016, despite famously avoiding technology stocks because he considered them outside his area of expertise. Another was selling a big chunk of his Apple holdings this year, despite its market-crushing returns.

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Even as he was selling a big chunk of his big winner Apple, Buffett hung on to his entire stake in Coca-Cola (NYSE: KO), which has been one of his worst performers lately. Does Buffett know something we don't? Should investors consider following the "Oracle of Omaha" into a position?

Image source: The Motley Fool.

A massive stake

Buffett's stake in Coca-Cola is huge. Berkshire Hathaway owns 400 million shares of the beverage giant, with a current market value of $28.3 billion. That represents 11% of Berkshire's entire stock holdings.

Coca-Cola is roughly tied with Bank of America (NYSE: BAC) as the third-largest position in Berkshire's stock portfolio, behind its longtime $48.4 billion stake in American Express (NYSE: AXP) at No. 2. Buffett's aforementioned Apple position, currently worth $57.4 billion, is still his top holding, even after he sold 20 million shares in the second quarter.

Berkshire first bought Coca-Cola shares in 1988, and continued buying through 1994, at which point Buffett had invested $1.3 billion in the company. Just over 30 years later, not only are his shares worth more than 21 times what he paid for them, he'll rake in $816 million in dividend payments -- more than 60% of his initial investment -- this year alone. That's one amazing set of returns!

But what have you done for me lately?

Coca-Cola may be one of Buffett's biggest holdings, but recently it certainly hasn't been one of the best. If we look at the performance of Buffett's biggest holdings since the time he bought Apple in 2016, there's a clear winner and a clear loser.

Data source: Y-charts

Yes, if Buffett had sold his Coca-Cola stock and put the money into any one of his other top holdings -- or even just used it to buy back Berkshire shares, or invest in an S&P 500 index fund -- he would have had astronomically better returns. Incidentally, it doesn't matter if you go back a few more years: Coca-Cola's returns -- on both a total return basis and a straight price basis -- have lagged the others all the way back to the Great Recession (at which point Coca-Cola finally starts outperforming Bank of America only).

So, why does Buffett keep hanging on to this longtime dud, and what does it mean for the rest of us?

Great for dividends, not for growth

Warren Buffett is a big fan of Coke as a beverage. In 2023, he claimed to drink five Cokes a day, and said he would rather give up a year of his life than stop doing so. However, he's also a big fan of Coca-Cola as a reliable, well-managed business.

In his 1988 letter to shareholders, Buffett extolled Coca-Cola's business model, saying of the company: "[W]hen we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever." In his 2022 letter, he focused on the dividend-paying power of Coca-Cola:

The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke's quarterly dividend checks. We expect that those checks are highly likely to [continue to] grow.

Buffett is right about that. As a Dividend King, Coca-Cola is likely to continue increasing its dividend payouts every year, even though its yield is already an above-average 3%. Investors looking for stability and a rock-solid dividend can't do much better than Coca-Cola. For growth-focused investors, or those looking for market-beating performance over the long term, there much are better opportunities elsewhere.

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

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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. John Bromels has positions in Apple, Berkshire Hathaway, and Coca-Cola. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.