LONDON -- Billionaire investor Warren Buffett is well-known for his focus on companies with strong earnings that pay good dividends. At the same time, he doesn't care much about share prices -- except when he's buying.
Buffett's investment style is as far as away as you can get from the aggressive, heavy-trading approach pioneered by hedge funds -- but his returns are far more consistent and much easier for investors like you and I to replicate.
Here's the secret.
Buffet's 50% yield
One of Buffett's most famous long-term holdings is his 8.9% stake in The Coca-Cola Company (NYSE: KO ) . The $15 billion shareholding is the largest holding of Buffett's company, Berkshire Hathaway, and most of it dates back to 1988, when Berkshire spent $1 billion to acquire a 6.2% stake at an approximate cost, adjusted for splits and dividends, of $3.75 per share.
Back in 1988, Coke shares offered a yield of 4% -- decent, but not remarkable. Since then, the company has maintained its 50-year unbroken record of annual dividend increases. The result is that in 2011, the dividend payout was $1.88, providing Buffett with a massive 50% yield on his original investment.
Yield on cost
Despite its golden record of annual dividend increases, Coca-Cola is not necessarily thought of as a high-yielding stock: At current prices, it only yields around 3.1%.
This 50% is Buffett's "yield on cost" -- the dividend yield on the price he originally paid. This is one the key benefits of holding shares in big companies over long periods, as I'll demonstrate below.
By simply maintaining his holding in a quality company, Buffett has seen the yield on his shares rise continuously to provide an amazing 50% annual return on his original investment.
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Similar to your Keppel and Sembcorp holdings :)
ReplyDeleteWhen we attend those free preview seminars on Value Investing, we are more likely to hear the Gurus quoting for example, it is Coca Cola :-)
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