Since taking over as CEO of Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) at the start of this year, Greg Abel hasn’t wasted much time. In less than nine months, Warren Buffett’s successor has made quite a few major investments, including increasing Berkshire’s position in Alphabet by $17 billion, as well as acquiring homebuilder Taylor Morrison for $8.5 billion.
Abel has removed numerous stocks from the Berkshire equity portfolio, most notably Mastercard, Visa, and UnitedHealth Group. Yet while Abel hasn’t shied away from reshaping Berkshire’s stock portfolio, there is one particular name among the well-known Warren Buffett investments that he’ll likely not touch: Coca-Cola (NYSE: KO).
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Berkshire’s 9.3% stake in Coca-Cola, a $35.5 billion position that accounts for nearly 10% of Berkshire’s overall stock portfolio, is one of the stocks most associated with the “Oracle of Omaha.” Abel will likely continue to hold this position as is. Not out of sentiment, but out of cold, hard economics.
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Why Coca-Cola became a bedrock position for Berkshire
Berkshire Hathaway first invested in Coca-Cola in 1988, steadily building up its position until 1994. Warren Buffett’s holding company paid a total of $1.3 billion for the position. The position is now worth over 27 times its cost basis. Based on Coca-Cola’s forward yield of around 2.4%, Berkshire generates around $850 million in annual dividend income. That’s a yield-on-cost of over 65%.
In short, steady earnings and dividend growth led to consistent compounding for the Coca-Cola investment, making it a bedrock position in the Berkshire Hathaway portfolio. But why did Buffett buy it in the first place? Back in 1988, Buffett was motivated to buy…
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