Investing is a passion of mine. In particular, dividend growth investing. While it’s a cliché example, I often think about Warren Buffett’s investment in Coca-Cola and the dividends he collects annually. For reference, Buffett bought Coca-Cola stock several decades ago, and has a cost basis of about $3.25 per share (the stock is currently trading at $60 at the time of this post). However, despite the phenomenal growth in share price, the real benefit of this position in Buffett’s portfolio is the dividends he collects annually.
For 2021, Coca-Cola paid an annual dividend of $1.68 per share. That means Buffet collected about half of his $1.3 billion initial investment in Coca-Cola just last year ($1.68 div / $3.25 cost basis). The dividends paid today compared to his initial investment means he is yielding about 52%! Between last year and this year, he will have made back his entire $1.3 billion. And that’s not to mention all of the dividends he’s made up until this year, as well as the ones he will make in future years. Every year he generates enormous cash flows through dividends, all without needing to sell his shares.
And while I’m no Warren Buffett, nor do I have $1.3 billion to invest, my long-term goal is to replicate that sort of dividend growth within my own portfolio. In the case of Coca-Cola, they are currently a dividend king, meaning they have paid out and raised their dividend for the past 50+ consecutive years. That means they’ve increased dividends through recessions and continuously generated a reliable stream of cash for shareholders.
However, I’m not looking to copy Buffett’s portfolio or invest in companies that are already dividend king status. In many cases, these companies are limited in their future growth potential due to their size and the industries they operate in. Instead, I’m looking to invest in companies that are hopefully future dividend kings. I’m searching for highly profitable companies that are raising their dividend by double digit percentages each year, and hopefully by the time I am ready to retire that compounding will yield similar results to Buffett. Coca-Cola’s dividend growth is quite lackluster these days due to slower sales growth and market saturation. Over the past several years they’ve only raised the dividend by a few cents per year. But there are many companies in higher growth industries that are raising their dividends by 10%-15% per year. Those are the types of companies I’m targeting. Eventually their dividend growth will also slow like Coca-Cola, but when you make over $650 million per year from those dividends (like Buffett), the growth isn’t as important. That’s the position I want to be in someday.
I started this blog as a way to document my investing journey while I work toward achieving financial freedom. In the future, this site will provide me the opportunity to reflect back on my past decisions and the reasoning behind them. I’ll be able to identify my good investments and bad investments, and hopefully learn more about which strategies work the best. While my main focus is on dividend growth stocks, I’m also open to investing in other businesses as well if the opportunity is there.
This blog will also be a way for me to share my investing journey with others, enabling them to learn from my mistakes and further improve their own investing strategies. I am by no means an expert (I didn’t go to school for finance), but I have enjoyed the challenges associated with learning the financial statements and interpreting data in order to make rational investing decisions. If dividend growth investing is an interest to you, I hope you’ll stick around for the content and follow me on my journey.