Dividend appeal. Warren Buffett once said that "time is the friend of the wonderful business." He was talking about Coca-Cola (Fortune 500). ,
In 1995, Berkshire Hathaway's KO holdings paid $88 million in dividends. Every year since, the soft-drink giant raised its payouts -- in fact, it boosted them for 50 straight years.
The result: Buffett's Coke stake, which hasn't changed since 1995, generated roughly $400 million in income last year.
Stock risk. U.S. consumption of carbonated soda is starting to slow at the same time that Coke's P/E of 18.1 is looking a tad bubbly. Still, that ratio is just a hair above the 17.5 P/E for beverage companies in the S&P 500, and it's 5% below the company's 10-year average.
What's more, Coke has a big edge in foreign markets, which account for 80% of profits. "Coca-Cola is well ahead of PepsiCo in establishing its international presence," says Edward Jones analyst Jack Russo.
Coke's dividend streak should continue as profits have risen at a steady rate of 9% for the past five years.
Dowe Bynum, co-manager of the Cook & Bynum Fund, says he also likes the fact that Coke's business doesn't require massive new investments and upgrades. "Soda, juices, and water are low-cost products," he says.
Stock or bond? Stock -- as long as you have the patience to ride out downturns. In the last bear, KO shares sank 30%. Still, that was 25 points better than the S&P 500, and Coke actually raised its payouts in the crisis.
At a glance
Bond yield to maturity: 2.0% (matures 11/2020)
Stock dividend yield: 2.9%
Dividend growth prospects: High
When does buying a stock make more sense than buying a bond? Here's our methodology.