The Berkshire Thread (Part 1): Coca-Cola (NYSE: KO) — The Stock Buffett Bought in 1988 and Has Never Touched Since

🗺️ Roadmap: You’re reading The Business Behind the Brand — Arc 2: The Berkshire Thread (Part 1 of 3). To read Arc 1, start here:

• Visa
• McDonald’s
• Costco

The Hook That Never Gets Old

Warren Buffett began accumulating Coca-Cola shares in late 1988 and completed his position through 1989. Total cost: approximately USD 1.3 billion. Current market value of Berkshire Hathaway’s stake: approximately USD 34 billion, representing around 9.3% of the company’s outstanding shares — a roughly 26-fold return before a single dividend is counted. He has never sold a share.

That story has been told a thousand times, and that’s precisely the risk of telling it again: it becomes hagiography, not analysis.

So let’s not dwell on why Buffett bought. Let’s ask whether the investment thesis still holds in 2026 — with GLP-1 weight-loss drugs reshaping consumer appetite, sugar under sustained regulatory and cultural pressure, and a stock trading at a forward P/E of around 26 times earnings. Because KO is not a nostalgia play. It’s either a living, compounding machine or a slow-moving moat-erosion story. The answer matters enormously to Australian SMSF investors who have come to rely on its USD income stream.

The Business Model, Decoded

Here’s what Coca-Cola actually sells: concentrate, not cola.

The company’s core business is manufacturing and licensing highly concentrated syrup to a global network of independent bottling partners. Those bottlers — including publicly traded companies such as Coca-Cola Europacific Partners, which covers Australia and the Pacific region — purchase the concentrate, add carbonated water, bottle the product, and manage local distribution and retail relationships.

The economics of this model are extraordinary. Coca-Cola bears none of the capital costs of manufacturing plants, delivery trucks, or refrigeration units across more than 200 markets. What it owns is the formula, the brand, and contractual pricing leverage over its partners. In FY2025, concentrate operations accounted for approximately 59% of Coca-Cola’s net operating revenues.

The distribution network built on this franchise model is arguably the most valuable physical asset in consumer goods. A Coke is available in countries that lack reliable electricity grids — delivered through hand-carried coolers, motorbike couriers, and local agent networks developed over decades. This is not an accident; it is the result of systematic infrastructure layering that would take any new entrant a generation and hundreds of billions of dollars to replicate.

That is the moat. Not the recipe — the reach.

The Numbers in 2026

Coca-Cola’s FY2025 results provide a clear picture of where the business stands:

*Excluding the USD 6.1 billion fairlife contingent consideration payment made in Q1 2025. Reported FCF was USD 5.3 billion.

Q1 2026 accelerated the momentum: net revenues of USD 12.5 billion (up 12% year-over-year), comparable EPS of USD 0.86 (up 18%), and free cash flow of USD 1.8 billion for the quarter alone. Global unit case volume grew 3%, and Coca-Cola gained value share across total non-alcoholic ready-to-drink (NARTD) beverages globally.

At a share price of approximately USD 84 (as at mid-July 2026), KO trades at the following key multiples:

None of those multiples suggest a bargain. But premium multiples are the long-term reality for a company with Coca-Cola’s earnings quality, consistency, and dividend record. The low beta of 0.35 reflects what the market has priced in: this is a low-volatility compounder, not a growth trade. (ROE is elevated by the asset-light model and long-term share count dynamics.

64 Years of Rising Dividends

This is the number Australian SMSF investors should anchor to: 64 consecutive years of dividend increases.

Coca-Cola is a Dividend King — a status requiring at least 50 consecutive years of annual dividend growth. Only a small cohort of US companies have maintained a streak this long. The current annual dividend stands at USD 2.12 per share, paid quarterly at USD 0.53. The average annual increase over the streak has been approximately 4.46%.

At USD 2.12 annually on a share price of ~USD 84, the trailing yield sits at approximately 2.5%. That is not high by pure income stock standards. The argument for KO is the growth trajectory, not the starting yield.

The compounding logic: An investor who purchased KO at USD 40 per share a decade ago now earns a “yield on cost” exceeding 5% annually — without any additional capital deployed. The dividend has compounded at roughly 4–5% per year for six decades. Given a long enough time horizon, that consistent growth matters more than any single year’s yield. For SMSF investors with a 10-to-20-year runway, the math compounds in their favour.

The payout ratio sits at approximately 65%, which is sustainable relative to Coca-Cola’s earnings quality and the asset-light, cash-generative nature of its business model. There is headroom to maintain the streak.

The GLP-1 Question — An Honest Assessment

The most serious structural threat Coca-Cola has faced in decades is not a competitor. It is a drug class.

GLP-1 agonists — weight-loss medications including semaglutide (marketed as Ozempic and Wegovy) — suppress appetite and have been shown to reduce consumption of calorie-dense foods and sugary beverages. JPMorgan estimates the GLP-1 market will expand significantly throughout 2026, driven by lower drug prices, Medicare coverage in the United States, and the anticipated approval of oral formulations that could dramatically expand the addressable user base beyond those currently willing to self-inject.

By early 2026, Reuters reported that both Coca-Cola and PepsiCo were actively reformulating products toward shorter ingredient lists and smaller pack sizes in direct response to shifting consumer preferences — a clear corporate acknowledgment that GLP-1 users behave differently in the grocery aisle.

The bull case: Coca-Cola’s response has been disciplined. Coca-Cola Zero Sugar volumes surged 14% in FY2025. fairlife — the high-protein milk and shake brand that Coca-Cola fully acquired through a multi-billion-dollar contingent payment — is growing rapidly in the health-adjacent beverage segment that GLP-1 users tend to migrate toward. Management’s argument is that GLP-1 users do not quit beverages; they shift from full-sugar cola to zero-sugar variants, protein drinks, or functional options. Coca-Cola’s portfolio now covers all three and is expanding further.

Critically, Coca-Cola gained value share in NARTD beverages globally in both FY2025 and Q1 2026. If GLP-1 adoption were genuinely cannibalising the core business, that competitive market share data would look different.

The bear case: The long-term structural trajectory for full-sugar cola is unfavourable. GLP-1 uptake is expected to grow materially as oral formulations arrive and prices decline. Regulatory sugar taxes are proliferating across Europe, Southeast Asia, and Latin America — regions where Coca-Cola derives significant unit volume. The USD 960 million BodyArmor trademark impairment in Q4 2025 was a reminder that brand extensions can fail even inside the Coca-Cola system, and that pivoting into new categories carries real execution risk.

The honest read: GLP-1 is a real headwind for full-sugar products, and the company is adapting faster than most of its peers. This is not an existential threat to the franchise — it is a managed product-mix transition that the company appears equipped to navigate. But investors should monitor three things closely in each quarterly result: (1) Zero Sugar volume growth, (2) overall NARTD value share, and (3) the contribution of price/mix versus pure volume. If those numbers turn negative while GLP-1 adoption accelerates, the thesis weakens materially.

Competitive Position and Structural Risks

Coca-Cola and PepsiCo together dominate global NARTD beverages, and neither is going away. The competitive threat is less about direct rivalry and more about category fragmentation: premium sparkling water, functional beverages, energy drinks, and high-protein products are all growing at the expense of traditional cola volume.

Coca-Cola has not been passive. It holds a ~20% equity stake in Monster Beverage, the leading energy drink company. It fully owns fairlife. It continues to expand its water, tea, and sports drink portfolios across markets. The “total beverage company” positioning is a genuine strategic response to category fragmentation, not just marketing language.

Beyond GLP-1, the structural risks worth monitoring include:

Currency headwinds: Coca-Cola reports in USD but generates revenue globally. In FY2025, currency headwinds reduced comparable EPS growth by 5 percentage points. A strong USD environment structurally compresses reported earnings.

Input cost pressure: Sugar, aluminium, and PET resin pricing affects the bottling system and, through volume and pricing negotiations, flows back to Coca-Cola’s margins.

Valuation premium: At ~26–27x trailing earnings, KO is priced for reliability. If that reliability shows even modest cracks — a dividend freeze, a meaningful market share loss, or a miss on organic growth — the re-rating risk from current multiples is significant.

Geopolitical exposure: Operations in politically volatile markets introduce earnings noise. Russia has been exited; the Middle East and parts of Africa remain exposure points.

The Australian Angle: USD Income for SMSF Portfolios

For Australian SMSF investors, Coca-Cola presents a specific and well-defined proposition: stable, growing USD-denominated income from a company with a 64-year track record of never cutting its dividend.

Dividend mechanics: KO pays quarterly dividends — currently USD 0.53 per share, with the next ex-dividend date on 15 September 2026 and payment on 1 October 2026. All dividends are paid in US dollars. For Australian investors, this creates direct AUD/USD currency exposure on the income stream. A weaker Australian dollar amplifies the dividend received in AUD terms; a stronger dollar compresses it. Neither direction changes the underlying USD income, but SMSF trustees should model income expectations in USD and account for currency movement when projecting cash flows.

Tax treatment: US dividends paid to Australian tax residents are subject to US withholding tax at 15% under the Australia-US double tax agreement (reduced from the standard non-treaty rate of 30%). Australian investors can generally claim the withheld amount as a foreign tax offset against their Australian tax liability. For SMSF trustees in the accumulation phase — where fund income is taxed at 15% — the US withholding effectively covers the fund’s tax liability on that dividend income. For pension-phase SMSFs (0% tax), the 15% withheld in the US represents an unrecoverable cost and should be factored into net yield calculations. There are no franking credits attached to US dividends.

Broker access: KO is listed on the New York Stock Exchange and is accessible through any Australian broker offering US market trading — CommSec, Stake, SelfWealth, Interactive Brokers, and others provide straightforward access. Investors are required to complete a W-8BEN form to access the reduced 15% treaty withholding rate, rather than the default 30%.

The income case in context: At USD 2.12 annually and a share price of ~USD 84, the trailing yield is approximately 2.5%. That will not replace a high-yield term deposit or a fully-franked Australian bank share in raw yield terms. The argument for KO in an SMSF is the 64-year growth trajectory: income that has increased every single year through recessions, inflation shocks, two Gulf Wars, a global financial crisis, a pandemic, and now a structural consumer behaviour shift driven by weight-loss medication. For trustees who measure income portfolios in decades rather than quarters, that consistency has a price — and Coca-Cola charges it.

The Verdict: Does the Thesis Still Hold?

Buffett’s original thesis was straightforward: Coca-Cola was a global brand with pricing power, capital-light distribution, and dominant consumer mind-share — all available at a sensible multiple in 1988 after Black Monday had depressed valuations across US equities.

In 2026, the brand remains dominant. The distribution model remains capital-light and deeply entrenched. Pricing power is intact — the company grew organic revenues 10% in Q1 2026 and 5% for all of FY2025, with price and mix doing meaningful work. The GLP-1 headwind is genuine, but the company’s response — zero-sugar volume up 14%, fairlife growing, market share held globally — shows an organisation adapting without dismantling the core franchise.

The risk is valuation and the long-term trajectory of sugar consumption. At approximately 26–27 times trailing earnings, investors are paying a full price for a company with mid-single-digit earnings growth potential. There is no material upside from multiple expansion at these levels; the return will be driven by dividend income and earnings growth, not re-rating. That is a reasonable trade for an SMSF income portfolio. It is a less compelling trade for anyone expecting capital appreciation.

Buffett bought in 1988 and has never revisited the decision. Whether that reflects timeless wisdom or the luxury of an enormously profitable cost basis depends on your perspective. For the investors reading this in 2026, the entry price is approximately USD 84 — not USD 3.25. The thesis still holds, but the margin of safety is thinner than it looks when you’re staring at a 64-year dividend streak.

The dividend, at least, keeps growing either way.

Next week…

Another compounder hiding in plain sight, and why its dividend history may matter more to Australian investors than its headline yield suggests.

Data Sources:

• The Coca-Cola Company, Fourth Quarter and Full Year 2025 Results (10 February 2026) and related non-GAAP reconciliations
• The Coca-Cola Company, First Quarter 2026 Earnings Release and conference call materials
• The Coca-Cola Company Investor Relations – Dividends and Historical Stock Data
• Berkshire Hathaway 13F filings (most recent available showing 400 million shares)
• Company 10-K and earnings presentations for concentrate revenue mix, margins, and impairment details
• Public market data for share price, ownership percentage (~9.3%), and valuation multiples as of mid-July 2026

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