Dividend Growth Investor: Happy Coca-Cola Dividend Day Warren Buffett
One investment strategy that stands the test of time is dividend growth investing. Fewer than 50 companies in the S&P 500 have achieved the status of dividend kings. These companies have raised their dividend payouts at least once a year for over 50 years.
While the dividend yields may be small, reinvesting that dividend income can lead to a market-beating return. And even modest dividend growth levels can compound substantially over time.
For instance, over the past decade, Coca-Cola (KO) has raised its dividend payment by about 5.7 percent each year. That may not sound like much. However, over time, the dividend payments roughly double every eight years.
That’s the power of dividend growth investing. In practice, consider the 400 million shares owned by Berkshire Hathaway (BRK-A). Bought between 1988 and 1994, the stake has a cost basis just under $1.3 billion.
However, the shares now pay out $704 million in annual income. That’s just over half the original purchase price. Since 1994, Coca-Cola has paid nearly $10 billion in dividends to Berkshire, or more than five time the purchase price.
Also, shares of Coca-Cola have moved gradually higher over time, adding capital gains to the mix.
That’s just one example of buying and holding a dividend growth stock through decades of the market’s short-term ups and downs. Naturally, that’s why the strategy pays so well for patient investors.