Buffett’s Sweet Dividends

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Old Mr. Buffett, a fellow who’s accumulated more pennies than a particularly enthusiastic magpie, let slip a little secret in his yearly letter to the shareholders of Berkshire Hathaway. It wasn’t about rockets or robots, oh no. It was about dividends. Those little sugary drops of income that companies occasionally bestow upon those patient enough to hold their shares. He boasted, you see, that some of his investments were as certain as birthdays. A rather bold claim, wouldn’t you agree? Especially in a world where fortunes vanish faster than a chocolate éclair at a picnic.

Now, Mr. Buffett isn’t one for gushing. He’s more of a slow-chewing tortoise of a fellow. But he did single out two companies, into which Berkshire had plonked a rather hefty $1.3 billion each. These weren’t just any investments; they were, he hinted, rather important to Berkshire’s extraordinary success. And, wouldn’t you know it, they were now coughing up dividends amounting to nearly half of that original investment. A most satisfactory state of affairs, indeed.

But that was three years ago. Time, as they say, is a greedy little beast, and things change. So, what were these two dividend-dispensing darlings? And had Mr. Buffett’s prediction held true? Let’s have a peek, shall we?

1. Coca-Cola

Coca-Cola. A fizzy, brown concoction that seems to have burrowed its way into the very fabric of civilization. Mr. Buffett started collecting shares of this sugary empire way back in 1994, buying them up bit by bit until he had a whopping 400 million. He hasn’t added to the pile since, but he hasn’t sold either. A sensible chap, our Mr. Buffett.

Back then, Berkshire was receiving a measly $75 million a year from Coca-Cola. But dividends, like mischievous little sprouts, have a habit of growing. Over the next 28 years, that trickle became a flood, swelling to $704 million in 2022. A truly magnificent sum.

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Today, a single share of Coca-Cola yields a respectable 2.8%. But the real magic lies in the “yield on cost.” Mr. Buffett paid a fixed price for his shares, and as the dividends grew, his yield crept up to a remarkable 50%! The S&P 500, for comparison, has averaged a mere 10.5% over the last 70 years. A rather significant difference, wouldn’t you say?

And since his 2022 letter, the dividend has continued its upward climb, just as he predicted. Those 400 million shares now cough up $206 million a year for Berkshire, and they plan to raise it again this March, marking their 64th consecutive annual increase. A truly relentless machine.

2. American Express

The other income-producing beast Mr. Buffett highlighted was American Express, the company that provides the little plastic rectangles we all wave about. It doesn’t have quite the same long history of dividend increases as Coca-Cola – a mere 63 years versus Coca-Cola’s impressive run. But in recent years, it’s been raising its dividend at a positively alarming rate, soaring by 91% since Mr. Buffett’s letter.

The current yield is a bit paltry, less than 1%, thanks to a 191% jump in the share price. But I suspect Mr. Buffett isn’t overly concerned with the current yield. He’s more interested in that yield on cost. Dividends have grown from $302 million in 2022 to a whopping $577 million – almost half of his original investment. A splendid return, indeed.

Can They Keep It Up?

Coca-Cola’s management isn’t one for making promises, but with over 50 years of dividend growth under its belt, it’s earned the title of “Dividend King.” A rather grand title, wouldn’t you agree? And they’re not likely to relinquish it anytime soon, especially after a robust 30% increase in earnings last quarter. Another dividend hike next month seems almost certain.

American Express, meanwhile, has been steadily increasing its annual card fees for the 29th consecutive quarter. A rather greedy habit, perhaps, but a profitable one. They’re expected to announce their next earnings on January 30th, and with earnings up 19% year over year, another dividend increase seems highly probable. They’ve even been buying back shares, which means fewer checks to write, but each one for a slightly larger amount. Clever, very clever.

With fundamentals and track records like these, you can see why Mr. Buffett highlighted Coca-Cola and American Express as examples of the “secret sauce” behind Berkshire’s stunning success. And, as in 2022, their payouts look highly likely to rise in the years ahead. A rather sweet prospect, wouldn’t you agree?

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2026-01-27 13:33