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Stock Watch

Warren Buffett: Coke's New Pitchman

The Oracle of Omaha wants the Chinese to sing in perfect harmony with his favorite sipping beverage. Time to buy Coke stock? When isn't it?

Coca-Cola Co.

Say hello to the face of Cherry Coke in China -- Warren Buffett. And it's not just because of his sparkling personality.

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As most fans know, Buffett is a large and long-time shareholder in Coca-Cola (symbol KO), and he loves his Cherry Cokes. He's also something of a celebrity in the Middle Kingdom, where he is revered as the world's greatest investor. So putting Buffett's smiling face on cans of Cherry Coke as the company introduces the flavored beverage in the world's largest market is a natural.

"I can't think of a better way to launch Cherry Coke than with its best-known fan on the package," Coca-Cola Chairman and CEO Muhtar Kent said in a March 31 press release. "It is an honor for us to be able to feature Warren on his favorite drink as it rolls out in one of the world's most exciting and dynamic consumer markets."

Buffett's likeness will appear on special edition cans during a six-month promotional period, or for as long as supplies last, Coke said.

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Yes, it's clever marketing. Just don't expect it to move the needle too much on Coke's sales figures.

The market for carbonated beverages in the U.S. has been in steady decline for more than a decade, forcing companies like Coke to expand its product lines to include waters, fruit juices, sport drinks, energy drinks and teas. Overseas markets such as China are leaning in the same direction as consumers opt for more healthful drinks.

Coke's global beverage sales grew just 0.8% over the last 52 weeks, according to market researcher Nielsen. Coke's sales volume in China slipped by a "low single-digit” percent last year, the company says.

Meanwhile, Cherry Coke has seen global sales volume growth of just 4.4% over the past five years. True, China is important to Coke. The Asia Pacific region accounted for 11% of Coke's total revenue in 2016, whereas North America was responsible for 15%. But it's unlikely analysts are rushing to raise their target prices on Coca-Cola stock.

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That's not to say Coke isn't a worthy long-term investment. Buffett certainly thinks it is. Berkshire Hathaway (BRB.B), his iconic holding company, is Coke's largest shareholder, with a 9.3% stake. Besides, Coke is hardly standing still as the market changes around it. The company is making good progress on transforming itself into a "total beverage company," analysts at Wells Fargo say, pointing to its portfolio of sparkling water, juice, dairy and plant-based drinks, tea and coffee, still water, enhanced water and energy drinks.

Perhaps most importantly, there's the legendary Coke dividend. The soda slinger has hiked its payout annually for 54 consecutive years. That track record has given it membership in the S&P Dividend Aristocrats, an index of companies with at least 25 straight years of dividend increases.

Dividend hikes like clockwork have helped make Coca-Cola stock a long-term market-beater, with an annualized total return of 9% over the past decade. The benchmark Standard & Poor's 500-stock index generated an annualized total return (price appreciation plus dividends) of just 7.6% over the same span.

Buffett prefers to invest in simple, mature businesses and that certainly describes Coke. Don't expect the stock to wow you with price appreciation. But the dividend yield is another matter, standing at 3.3% based on the last four quarters of payouts. That's generous in today's world of paltry interest rates. With its reliable and rising dividend, Coke looks like a good fit for an income portfolio whether Warren Buffett's face is on the can or not.

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