The Coca-Cola Investment That Made Buffett's Fortune: What Today's Investors Should Know About This Dividend Powerhouse

How Berkshire Hathaway’s Most Famous Position Began

Back in the late 1980s, Warren Buffett faced an unusual challenge. His reputation as an investor had become so influential that simply announcing a new position would trigger market movements—a problem most investors could only dream of having. So he did something unprecedented: he petitioned the Securities & Exchange Commission (SEC) for discretionary approval to keep his investment activities hidden for an entire year, fearing his actions would move markets before he could complete his buying strategy.

The SEC granted the request. When Berkshire Hathaway convened its 1988 shareholder gathering, attendees had no way of knowing that Buffett had quietly accumulated 14 million shares of a beverage company. The only hint came from his beverage choice at the meeting—he’d switched from his usual PepsiCo to Coca-Cola, signaling a major shift in his thinking.

From Expensive to Irresistible: The Setup for a Legendary Trade

For years, Coca-Cola had been on Buffett’s radar. His biographer Alice Schroeder documented his long-standing fascination with the brand. However, the valuation had consistently put it out of reach—until Pepsi’s aggressive pricing strategy triggered a competitive downturn, sending Coca-Cola’s stock tumbling to $38 per share.

That moment of weakness became Buffett’s moment of opportunity. He deployed $600 million initially, but rather than going all-in at once, he methodically built his position over time. By 1994, when he stopped buying, Berkshire controlled exactly 400 million shares, having invested $1.3 billion total. On an inflation-adjusted basis, his average cost per share worked out to just $3.25—a price that would prove to be among the greatest steals of his career.

The numbers since have been staggering. Coca-Cola’s share price has appreciated more than 2,000% in the decades following that initial purchase. Yet even more impressive is the income stream: Berkshire now collects $816 million annually in dividends from this single position—delivering a yield exceeding 50% on the original $1.3 billion investment. Few investments in history have proven so transformative.

The Dividend Story That Keeps Getting Better

When Buffett penned his 2022 shareholder letter, he highlighted both Coca-Cola and American Express as the twin pillars of what he called “the secret sauce” fueling Berkshire’s astronomical 3,787,464% return trajectory since 1965. That year, Coca-Cola’s dividend checks totaled $702 million—itself a nearly 50% annual yield on the original purchase price.

Fast forward three years, and that income stream has only grown, reaching $816 million. In February, Coca-Cola announced its 63rd consecutive dividend increase, cementing its status as a Dividend King—a distinction few corporations can claim. Management appears committed to extending this streak.

The current yield stands at 2.9% per share, meaningfully higher than the S&P 500’s average of 1.14%. While the company doesn’t publicly forecast dividend growth, operational metrics suggest room for expansion. Last quarter’s earnings-per-share growth hit 30%, and operating cash flow reached $3.65 billion—the money available after all operational expenses for dividends, buybacks, or acquisitions.

With 4.3 billion shares outstanding, Coca-Cola’s quarterly dividend of $0.51 per share requires $2.19 billion quarterly, consuming 60% of operating cash flow. That leaves a 40% cushion—substantial breathing room for a mature enterprise, particularly as the company continues margin expansion.

Price Appreciation vs. Income: Understanding the Real Trade-Off

Here’s where the investment thesis evolves. Coca-Cola has undoubtedly been a phenomenal wealth generator for long-term holders. However, prospective investors must distinguish between two different objectives: capital appreciation and income generation.

For those seeking share price growth, the recent track record presents a more modest picture. Over the last decade, Coca-Cola’s shares have climbed 55%—respectable, but pale against the S&P 500’s 223% appreciation. For a corporation that already dominates its sector with limited room for market-share expansion, growth-oriented investors may find more compelling opportunities elsewhere.

However, for income-focused investors, the calculus differs entirely. Coca-Cola’s above-average dividend yield, combined with a genuine track record of annual payout increases, positions it as a cash-generative machine. Management has demonstrated both the ability and commitment to raise distributions year after year, making it ideal for those prioritizing steady income over rapid capital gains.

The Bottom Line for Today’s Investor

Coca-Cola remains highly positioned to sustain its dividend-growth trajectory, aligning with Buffett’s original thesis that the company would function as a reliable cash generator. For investors whose primary goal is current income supplemented by modest appreciation, Coca-Cola warrants serious consideration.

That said, those chasing explosive returns or seeking exposure to rapidly growing markets will likely find better-suited alternatives. The company’s mature market position and modest growth rates suggest its best days of capital appreciation may already be behind it—a reality that doesn’t diminish its appeal to income investors, but does reshape the opportunity for others.