Abel Holds Firm on Coca-Cola Stake Amid Premium Price
Greg Abel, CEO of Berkshire Hathaway, has been busy reshaping the company's stock portfolio since taking over from Warren Buffett. In less than nine months, he has made significant investments, including increasing Berkshire's position in Alphabet by $17 billion and acquiring homebuilder Taylor Morrison for $8.5 billion.
However, there is one investment that Abel seems unlikely to touch: Coca-Cola (KO). Berkshire Hathaway holds a 9.3% stake in the beverage company, worth $35.5 billion and accounting for nearly 10% of its overall stock portfolio.
The position was first invested in by Buffett in 1988, when he paid $1.3 billion for it. Today, that investment is worth over 27 times its original cost basis. Berkshire generates around $850 million in annual dividend income from the position, a yield-on-cost of over 65%.
Abel's reluctance to sell the Coca-Cola stake comes down to cold economics. Selling the shares would result in a significant tax bill for Berkshire, with Abel owing around $7.2 billion in federal corporate income taxes on the gain. He would need to find an investment capable of generating returns superior to what Berkshire generates from its $35.5 billion stock position.
On the other hand, holding onto the Coca-Cola stake allows it to continue generating dividend income, which can be used to fund new investments. Given Coca-Cola's long track record of annual payout increases, this income is likely to grow in the future, giving Abel more flexibility to make his mark elsewhere.