Making a passive income through dividends is the dream of many. Here is Warren Buffett’s secret recipe with 1 stock that has been part of his portfolio for many years.
This stock to buy for passive income has been in Warren Buffett’s portfolio for many years. The billionaire investor from Berkshire Hathaway has always looked for dividends stocks: his “secret recipe” for obtaining extraordinary returns over the decades.
In this article, we will look at one of Buffett’s favorite stocks to generate passive income.
Although its dividends are no longer growing as quickly as in years past, this stock continues to offer a stable and attractive yield for investors seeking passive income. Let’s see the reasons why this NYSE giant should be considered a solid choice for your portfolio.
Buffett prefers dividends
Warren Buffett is known to be a big proponent of investing in dividend stocks. He recently highlighted the importance of selecting such companies in a message to shareholders. Among the many stocks of which he was a trusted shareholder, Coca-Cola stands out, in which he held shares for many years. Coca-Cola’s dividend yield has risen well above 3%, making it an attractive option for those looking for passive income.
When Buffett began investing in Coca-Cola, annual dividend payments from that investment were $75 million in 1994. Today, these dividends amount to more than $700 million. This huge increase shows how powerful long-term investing in dividend-growing companies is. And Buffett has no plans to sell his shares, as he believes passive income will continue to grow over time.
Coca-Cola grows over time
But Coca-Cola isn’t just a stock for those looking for dividends. The company continues to demonstrate solid capital growth. In the third quarter, sales of organic products grew by 11%, highlighting an increase in market share in the takeaway drinks sector.
Coca-Cola raised its growth outlook for the second consecutive quarter at the end of October.
Brands like Coke Zero are gaining popularity among consumers, as are the beverage titan’s less traditional franchises in areas like teas and energy drinks. Dominating several global beverage niches, Coca-Cola has a solid foundation for future growth. This is confirmed by CEO James Quincey, who said: “Our leading portfolio of brands…positions us to win in the marketplace today and lays the foundation for the long term”.
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Coca-Cola, financial data and dividend
Coca-Cola’s financial data are clear. An operating profit margin of 30% of sales is a very strong indicator.
Coca-Cola’s recent financial performance confirms its solidity. In the third quarter, the company beat analysts’ expectations. adjusted earnings per share were 74 cents, compared to the expected 69 cents. Revenue reached $11.91 billion, beating the expected $11.44 billion.
The third quarter saw an increase in net income attributable to shareholders, which rose to $3.09 billion, or 71 cents per share, compared to $2.83 billion, or 65 cents per share, for the year previous. These results demonstrate that Coca-Cola is maintaining its profitability despite rising raw material costs and price increases.
Sales growth was solid, up 8% to $11.91 billion. This figure does not include the impact of acquisitions and divestitures, but the organic growth rate was even more impressive, up 11%.
Operating cash flow of $9 billion over the past nine months, an increase of 10% over the prior year, highlights the company’s financial strength.
This solid cash flow has allowed Coca-Cola to increase its dividend for 60 consecutive years, with the latest increase at 3%. Buying shares today allows you to obtain a return of approximately 3.4% per year. This yield combined with consistent dividend growth makes investing in KO attractive for those looking for passive income.
Is the price of Coca-Cola too high?
Coca-Cola is no longer a low-cost stock like it was in the early 1990s, but it’s not terribly overvalued either. Currently, you can buy shares for less than 6 times annual sales and 23 times earnings. These values are near three-year lows, suggesting the stock may still offer growth opportunities.
While the stock’s short-term performance may be affected by factors such as economic growth rates, consumer spending patterns, and interest rates, income-seeking investors can look beyond this volatility. Coca-Cola has a strong market-leading position, consistent profits, strong cash flows, and valuable global brands.
As long as these factors continue to result in increased sales over time, the stock should continue to deliver quarterly positive returns.
Despite the year-to-date price correction, Coca-Cola’s valuation remains slightly higher than the consumer goods sector average. However, it is important to note that the current market value still offers a significant premium margin, albeit lower than its historical one.
|DISCLAIMER
The information and considerations in this article should not be used as the sole or primary basis for making investment decisions. The reader maintains full freedom in his own investment choices and full responsibility in making them since he alone knows his risk propensity and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public for savings.| Original article published on Money.it Italy 2023-11-01 16:03:00. Original title: 1 titolo da comprare come rendita passiva. È il preferito di Warren Buffett
