There are not many names that are as revered as Berkshire Hathaway’s illustrious CEO, Warren Buffett. Acclaimed for his value-driven, long-term strategy, Buffett has amassed a fortune by spotting excellent businesses and sticking onto them for many years.
Among his most famous ventures is The Coca-Cola Co. (NYSE:KO), which he founded and has owned since 1988. Berkshire Hathaway is currently benefiting from its perseverance, having generated an incredible 59.7% yield on its initial investment.
The power of patience
In order to increase its ownership of Coca-Cola, Berkshire Hathaway started buying shares in 1988 and kept doing so until 1994, investing a total of $1.3 billion. In 2024, the business had amassed 400 million Coca-Cola shares, valued at more than $24.7 billion.
In a recent annual letter to investors, Buffett discussed his thoughts on the Coca-Cola purchase, emphasizing the value of perseverance and the necessity of spotting truly excellent companies. “In August 1994 – yes, 1994 – Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire,” the author wrote.
The dividend growth machine
Consistent dividend increase has been a major factor in Coca-Cola’s success as a long-term investment. Coca-Cola gave Berkshire Hathaway a $75 million cash dividend in 1994. That yearly dividend increased to $736 million by 2023. Berkshire is now expected to receive a whopping $776 million in dividends this year alone, representing a 59.7% yield on its initial $1.3 billion investment, according to the beverage company’s latest dividend rise to $0.4850 per share.
In expressing his belief that Coca-Cola will be able to sustain dividend increases, Buffett said, “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 grow.”
Check out:”If you don’t find a way to make money while you sleep, you will work until you die,” remarked Warren Buffett once. Investing in high-yield real estate notes that pay 7.5% to 9% is a great way to gain passive income.
A dividend royal for the ages
Due to its lengthy history of dividend growth, Coca-Cola has been inducted into the exclusive group known as Dividend Kings, which is made up of businesses that have raised their dividends for at least 50 years running. Coca-Cola has actually increased its dividend for an amazing 61 years running, which is evidence of its stability and dedication to providing returns for shareholders.
The current dividend yield on Coca-Cola shares, for those who are thinking about buying some, is 3.13%. Though this might appear insignificant in comparison to Berkshire Hathaway’s 59.7% return on initial investment, it’s crucial to keep in mind that Coca-Cola has consistently grown its dividend at a robust pace of 5% over the past ten years.
The power of compounding can eventually turn even a relatively small beginning yield into a sizable income stream, as Buffett’s experience shows.
Other routes to passive income
Not every investor has the same resources or time horizon for investing as the Oracle of Omaha, despite the fact that Warren Buffett’s success with Coca-Cola is definitely motivating. Alternative assets like real estate can present enticing options for individuals looking to diversify their income streams beyond conventional dividend equities.
Investors can receive passive income through fractional ownership of rental properties and participation in commercial real estate loans through platforms such as Arrived and EquityMultiple’s Ascent Income Fund. These assets can be useful additions to a well-rounded portfolio, even though they do not always follow Buffett’s investment philosophy.
With Arrived, people can invest as little as $100 in shares of carefully selected rental properties, generating rental income and possibly capital gains without having to deal with the headaches of landlording. In the first quarter of 2024, Arrived distributed dividends to investors totaling approximately $1.1 million.
The Ascent Income Fund from EquityMultiple, on the other hand, targets net returns of 12% and provides exposure to a diverse pool of commercial real estate loans. The minimum investment is $5,000, and income payments are made quarterly. As of Q4 2023, EquityMultiple had distributed over $388 million to investors, demonstrating its impressive track record.
Like with any investment, choosing what’s best for a portfolio requires people to take into account their personal objectives, risk tolerance, and available funds. Even while they might not be appropriate for everyone, alternative investments like EquityMultiple’s Ascent Income Fund and Arrived Homes can be quite helpful in diversifying an investor’s portfolio and producing passive income.
The final word
The over 60% yield that Warren Buffett received on his Coca-Cola investment serves as a potent reminder of the benefits that can arise from spotting excellent companies and having the perseverance to hold them for the long haul. The takeaway? “When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable,” Buffett said.
A combination of premium dividend growth companies and well chosen alternative assets can offer a strong foundation for long-term financial success for individuals looking to create their own income streams. Investors can put themselves in a position to benefit from compounding for years to come by concentrating on the fundamentals, diversifying wisely, and keeping a patient, disciplined approach.
(Tashia Bernardus)