Investors often look for ways to make their stock portfolios more immune to recessions. To do that, they might study the investment philosophy of Warren Buffett.
While Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRK.B) recession strategy may focus on the company’s approximately $348 billion in liquidity, Buffett’s company continues to hold an extensive portfolio of stocks, and that part of the strategy could revolve heavily around stocks like Coca-Cola (NYSE: KO).
Still, Buffett and his team first began buying shares of Coca-Cola in 1988, and Berkshire has not bought additional Coca-Cola shares since 1994. Knowing that, is owning a Warren Buffett investment like Coca-Cola an appropriate way to recession-proof one’s portfolio? Let’s take a closer look.
Berkshire Hathaway and Coca-Cola
Admittedly, one might feel tempted to follow Berkshire’s lead with this stock. Buffett’s company invested just under $1.3 billion over six years. In that time, subsequent stock splits took Berkshire’s Coca-Cola position to 400 million shares, valued at about $28.8 billion as of this writing.
Moreover, that does not include dividend income earned over that time. That dividend has increased for 63 consecutive years, making the company a Dividend King. Those increases have taken the payout to $2.04 per share.
The rising dividend over 37 years means Berkshire’s Coca-Cola shares will earn $816 million in dividends this year. That takes Berkshire’s annual dividend yield to around 63%, likely making it recession proof in Buffett’s case.
Coca-Cola may also appear attractive in recessionary environments. Beverages, particularly water, are necessary for survival. A Coca-Cola soft drink or Topo Chico hard seltzer may appeal to consumers who cannot afford a more expensive luxury during a recession.
Coca-Cola and new investors
Unfortunately for those looking to buy now, the investment case for Coca-Cola may give investors clues as to why Berkshire has not bought additional shares in 31 years.
For one, at current prices, the dividend yield is about 2.75% for new investors. That is around double the 1.35% average return on dividends for companies in the S&P 500 index. Nonetheless, investors will have to rely primarily on stock price gains if they want to outperform that index.
