Warren Buffett is currently earning a 39% dividend yield on his shares of Coca-Cola (NYSE: KO).
It seems impossible. If you or I were to buy the shares today, we’d earn a yield of just 1.3%.
But Buffett first added the shares to Berkshire Hathaway’s (NYSE: BRK-B) portfolio back in 1988. Despite being a mature business even back then, the stock has earned roughly 1,800% on Berkshire’s original investment. Meanwhile, Berkshire’s yield on cost (the amount of dividends earned as a percentage of the original investment) is 39% per year thanks to Coke’s steady dividend growth.
What’s behind this? After all, Coke had been around for more than a century before Buffett invested. How is it that some companies can continue to grow — and raise dividends — seemingly forever?
It’s an advantage that I call a “legal monopoly.”
The few businesses that have this advantage are among the richest companies in the world. And they only seem to get richer with every passing year — much to the enjoyment of their investors.
Many companies have operated with this advantage for decades, without a peep from the government.
That’s because this isn’t a monopoly in the traditional sense. Most monopolies attract attention (and regulation) because they keep other businesses from competing. They tilt the odds so far in favor of one company that no one else can even do business.
But the legal monopoly I’m talking about doesn’t keep other businesses from competing — it simply helps a company to continue growing and generating billions in profits for its investors… almost no matter what.
Take a look at what Coke has done during the past decade. And remember, the company was founded in the 1880s.