Is This Warren Buffett Favorite a Stock to Buy in 2025?

Warren Buffett doesn't tell investors a lot about why he picks certain stocks. He gives a lot of general advice, but he usually steers clear of outright recommendations.

But there are a few exceptions. The few times he mentions individual companies by name, it's nearly always the same ones. That includes Coca-Cola (NYSE: KO).

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If you don't know about Buffett's love of Coca-Cola, that might be surprising. Coca-Cola has underperformed the market for years, and it kept up that streak in 2024, gaining 9% while the market rose 25%.

What should investors think about Coca-Cola stock in 2025?

It's 2025. Have you had a Coke yet?

Millions of people around the world enjoy a Coca-Cola-branded beverage every day. Besides its namesake family of drinks, Coca-Cola owns brands like Minute Maid, Schweppes, and Fuze Tea. Coca-Cola operates in 200 countries and reaches more than 6 billion customers around the world.

The trademark Coca-Cola beverages are the company's cash cows. In the third quarter, Coca-Cola beverage demand increased in nearly all of its regions, even though there was less demand for other kinds of drinks. However, depending on the environment, many of the newer brands can breathe life into an otherwise slow-growing company.

Coca-Cola has a working model that leverages its core brands to reliably generate cash while it invests in newer, higher-growth brands. Bringing a new brand into the Coca-Cola ecosystem can boost sales, and once the brand is in the system, it benefits from the company's unmatched global distribution network. That leads to better efficiencies and margins, which also trickle down to the bottom line.

Thirsty fans and high demand

Management calls this a "dynamic" environment, and inflation is leading to innovative ways to meet changing demand. Coca-Cola has been introducing value-based packaging like smaller bottles to generate sales without cutting costs or raising prices, and it's also leaning into its premium lines to capture the resilient customer that's still spending. This is how it's been able to boost its comparable margins, although total company operating margin was squeezed from 27.4% to 21.2% in Q3.

This may not be Coca-Cola's best-ever performance, but it's pretty impressive considering the challenging operating climate. A bet on Coca-Cola stock is a bet on its reliability and ability to manage through every kind of economic scenario.

Consider that in 1987, when Coca-Cola was inducted into the Dow Jones Industrial Average, some of the other 29 stocks included Inco and Owens-Illinois. Younger readers might not even recognize these names, but they're still drinking Coca-Cola.

This is what Buffett is talking about when he sings Coca-Cola's praises as a global brand with a durable competitive edge. When you can pinpoint a company that has that, you'll end up with solid long-term performance that you can count on.

The dividend supports that outlook. Coca-Cola has raised its dividend annually for the past 62 years. That's an incredible track record that includes huge global events that have wiped out other players, even industry giants. This is the reason Dividend Kings have earned their status.

Not all Dividend Kings pay an attractive yield, though. Coca-Cola's dividend yield consistently comes in at about 3%. Today, as the stock lags the market's gains, it's 3.2%, considerably more than the S&P 500 average yield of 1.3%.

Investors who are looking for a stable anchor stock that pays a reliable, high-yielding dividend should consider buying Coca-Cola stock. Every investor should have some stocks like this, even if you have a high risk tolerance and are a growth investor.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.