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Warren Buffett famously said that the stock market is “a device for transferring money from the impatient to the patient“. What the celebrated billionaire investor means is that it rewards those who hold quality stocks through the inevitable ups and downs.
And it really rewards those who buy from others selling out of fear. For instance, consider perhaps Buffett’s most famous investment — Coca-Cola. Back in the 1980s, he was greedily buying shares of Coke from impatient investors. In fact, he ended up with roughly 6.2% of the firm’s outstanding shares.
Fast forward to today, Buffett’s Berkshire Hathaway owns more than 9% of the beverage giant, without buying another share. How so? Due to Coca-Cola’s regular share buybacks, which have reduced the total share count and indirectly boosted Berkshire’s stake.
What’s more, Buffett’s holding company has received rising dividends, lots of them. Indeed, it’s on track over the next few years to receive annual dividends of $1bn, which would be incredible considering he bought the entire stake for about $1.3bn.
Building wealth patiently
Naturally, not all of us have the wherewithal to take chunky 6% stakes in global corporations. But the same patient Buffett-esque mindset applies to building wealth, even when starting with modest sums of money.
To give an example, let’s assume someone who gets paid weekly can afford to invest £99 into the stock market. That might not sound like it would do much, but it’s actually £5,150 every year.
If this investor were to generate half the returns that Warren Buffett has throughout his illustrious career, that would be around 10%. This is the ballpark figure for global stocks over the long run, with dividends reinvested.
Generating this average rate of return on £5,150 each year would end in a portfolio worth £885,627 after 30 years!
Dividend machine
At this point, things would become interesting because an investor would have two choices. They could plough on investing their £99 every week, turning the £885k portfolio into almost £1.5m after another five years.
Or, alternatively, they could choose to stop investing and enjoy spending the dividends being generated. If the portfolio yielded 6% at this point, that would be just over £53,000 every year in passive income.
By this point, the portfolio should be sufficiently diversified to offset the risk of individual dividends cuts. And also big enough to absorb those stocks that don’t generate positive returns (not all shares do, sadly).
Emerging FTSE 100 bottling giant
Returning to Coca-Cola, I think its namesake from the FTSE 100 is worth considering for a portfolio. That’s Coca-Cola HBC (LSE:CCH), the bottling firm that makes, distributes, and sells brands like Coke, Fanta, and Monster in certain markets across Europe and Africa.
In Q3, the firm reported organic sales growth of 5%. That was below market expectations for 6.3%, which highlights that the company might be experiencing slowing growth due to weak consumer spending (this is a risk).
However, zooming further out, year-to-date organic revenue growth was still strong at 8.1%. Most firms would give their right arm for this level of growth in today’s challenging market.
Also, the company is buying a 75% controlling interest in Coca-Cola Beverages Africa for $2.6bn. This will create an emerging Coca-Cola bottling giant, with leading market positions across Africa and Europe.
