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Billionaires Bill Gates and Warren Buffett have several things in common.
Firstly, they are two of the richest men in the world, with Gates at the top of the list and Buffett in third.
They are also avid philanthropists and have similar interests when it comes to investing; the two love simple businesses that are easy to understand.
They also have a love for the world’s largest beverage company. The #1 dividend loved by two of the world’s richest men is none other than Coca-Cola stock (NYSE:KO).
The beverage company is the Bill & Melinda Gates Foundation second largest holding. The foundation has Buffett’s Berkshire Hathaway as its number one holding, with nearly half of its portfolio invested in the conglomerate.
Around 6.6% of the Bill & Melinda Gates foundation is invested in Coca-Cola. Meanwhile, Buffett’s Berkshire Hathaway owns just over 9% of the beverage company.
One of the reasons both mega-billionaires own Coca-Cola stock is its half a century streak of yearly dividend increases. Its dividend is a solid 2.9%, which doesn’t seem like much, but it’s still 50% higher than the average S&P 500 dividend yield.
On a total return basis (stock appreciation and dividends), Coca-Cola stock has returned 1,770% over the last 25 years, while the S&P has returned 917%. Its top competitor, PepsiCo (NYSE: PEP)’s, returned 1,610% over that same period.
Coca-Cola already has a vast international footprint, with sales of over $1 billion in 19 different countries. It already generates nearly 60% of sales from outside North America. But the company also has plans to enter the fast growing emerging markets. These include Latin America and China, where the number of middle class citizens is on the rise, which will ultimately boost the demand for soft drinks.
The beverage giant plans on investing some $8 billion in both China and Brazil over the next few year. That’s a large chunk of change for a company that spends just $2.5 billion annually in capital expenditures.
Then there’s the opportunity to increase its exposure to health-focused beverages. Currently, about three-quarters of its volume is tied to carbonated soft drinks. However, it is making an effort to get into other beverages. It already has Vitamin Water, Smart Water and Minute Maid brands, but it recently bought Zico Coconut water and took a stake in a protein shake company.
And when you stack Coca-Cola stock up against its number one peer, PepsiCo, it’s still a compelling investment. Both trade with similar P/E ratios, but Coca-Cola has better margins.
With a profit margin of 18.2%, Coca-Cola already has an eight-percentage point lead over PepsiCo. Its margins could get even better over the next year or so. Back in 2010, it bought up its North American bottling operations, but it’s now looking to transfer that business into a franchise model.
The franchise model will allow Coca-Cola to reduce costs related to warehousing and delivery operations. This should boost margins over the long-term, where operating margins for the bottling business are lower than Coca-Cola’s core concentrate business.
The combination of a solid dividend and improving growth opportunities in both emerging markets and wellness beverages makes Coca-Cola stock an interesting play in the beverage space.
Gates knows a great business when he sees one, having built Microsoft into a multi-billion business; Buffett has a proven track record of investing in market beating companies.
It’s hard to see how following these two icons into Coca-Cola would be a poor decision for long-term investors.
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