No. of Recommendations: 20
With Berkshire having 400 million shares (!!!) of KO that's $848 million in annual dividends every year or $212 million per quarter, just staggering numbers.
Coke is a big company, so the numbers are big.
But don't confuse this with a successful company. Real corporate net earnings are flat since at least 2011-2012, despite the fall in tax rates. The dividend has risen because long term debt has doubled, the payout ratio has risen, and the [split adjusted] share count has fallen about 5%. Money spent on buybacks isn't available as owner earnings, so the rising EPS is illusory.
Given how badly the top level business has done, it's probably fair to say that those buybacks in the last ~15 years at (say) P/E of 19-24 for a non-growing firm have been very poor capital allocation. Often you can get owner earnings yields on non-growing cash cows of about 8-10%, not 4-5%. If someone is up to it, estimate what their value would be today if the money spent on those buybacks (I dunno, $12 bn??) had been put into QQQ or SPY or BRK, meaning the share count wouldn't have fallen nor the real EPS risen.
2025 will probably look good measured in US dollars because they export a lot and the non-US revenue seems a bigger number when the dollar falls. Probably their biggest charm as an investment.
It's still a fine holding for Berkshire as a substitute for a near-perpetual inflation protected bond. Since the retained earnings are merely letting the firm keep up with inflation, the owner earnings yield is only the dividend yield, currently 2.59%. 30 year TIPS are offering 2.47%, and it was 2.65% a couple of weeks ago. But I suspect management is smart enough not to buy it today. They have certainly taken every opportunity NOT to add to the position for many many years.
Jim
