2 Stocks That Could Create Lasting Generational Wealth

The term “Coca-Cola Millionaire” exists for a reason.

| More on:
grow money, wealth build

Image source: Getty Images

Did you know that Warren Buffett isn’t the only individual who has amassed a fortune from investing in The Coca-Cola Company (NYSE:KO)?

In fact, there’s a small town in Florida called Quincy that’s famously home to a group known as the “Coca-Cola millionaires.”

This phenomenon occurred because a local banker, believing in the potential of Coca-Cola during its early years, advised residents to buy and hold shares.

Many followed his advice, and over the decades, as Coca-Cola’s value soared, these early investors saw their wealth multiply significantly due to dividend growth, share splits, and buybacks.

This story from Quincy is a classic example of the power of compounding and the importance of time when investing in quality companies. It illustrates how patience and long-term thinking can turn consistent investments into generational wealth.

With this in mind, let’s look at why Coca-Cola continues to be a compelling investment and explore another stock that might just set the stage for the next generation of Coca-Cola millionaires.

Coca-Cola today

Today, The Coca-Cola Company is a veritable behemoth in the beverage industry, boasting a market capitalization of $270 billion and a diverse portfolio of over 200 brands.

While you might be familiar with its flagship product, Classic Coke (my personal favourite), the company also owns other popular brands like Fanta, Sprite, Minute Maid, Powerade, and more.

Interestingly, Coca-Cola doesn’t directly sell these drinks. Instead, it produces and sells syrup concentrates to bottlers across different geographic regions under exclusive contracts. This business model is crucial for maintaining high profit margins.

By selling the concentrate rather than the finished product, Coca-Cola minimizes its production and distribution costs. This strategy significantly contributes to the company’s impressive profit margin of 23.41% and an operating margin of 32.97%.

Moreover, Coca-Cola has consistently demonstrated its commitment to shareholder value. The management recently increased the dividend to US$0.485 per share, marking the 62nd consecutive year of dividend raises.

Currently, the stock offers a dividend yield of 3.1%, underscoring its status as a reliable investment for income-seeking shareholders.

Coca-Cola Bottling stock

Remember those bottlers I mentioned earlier? Many of them started as family-owned companies with exclusive contracts to bottle Coca-Cola products, and the most successful ones have morphed into publicly traded companies.

One prime example is Coca-Cola Bottling (NASDAQ:COKE), the largest Coca-Cola bottler in the United States. While it’s not nearly as large as The Coca-Cola Company, with a market capitalization of $8.9 billion, it is definitely a growth name worth keeping an eye on.

Unlike its namesake, Coca-Cola Bottling does not focus heavily on dividends as a means of rewarding shareholders—it currently yields only 0.21%. Instead, the company emphasizes buybacks as a strategy to enhance shareholder value.

Essentially, by buying back shares, the company is reducing the supply of its stock, making each remaining share represent a larger ownership stake in the company.

Recently, Coca-Cola Bottling announced a significant buyback program, planning to repurchase $3.1 billion of its own shares. Given its current market cap, this buyback represents around 35% of its shares outstanding.

This means that your ownership stake in the company is set to become significantly larger, as there are fewer shares available, and therefore, each share holds more value.

The company is financing this ambitious buyback by taking on additional debt. While this strategy can be concerning to some investors due to the increased financial risk, it is a common practice for companies seeking to leverage their operations and boost earnings per share.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has positions in Coca-Cola and Coca-Cola Consolidated. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

up arrow on wooden blocks
Dividend Stocks

2 High-Yield Dividend Stocks You Can Buy and Hold for a Decade

Restaurant Brands International (TSX:QSR) and another high-yield dividend payer are worth banking on for the long haul.

Read more »

hand stacks coins
Investing

Where Will Brookfield Corporation Stock Be in 10 Years?

Brookfield (TSX:BN) did well last decade. Will it thrive in the next one?

Read more »

think thought consider
Dividend Stocks

Restaurant Brands International: Buy, Sell, or Hold in 2025?

Investors should look more closely at QSR stock and potentially buy on the recent weakness.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Maximizing Returns with Your 2025 TFSA Contribution Room

The TFSA is a top tool for maximizing investment returns. Here are two stocks that could be a great buy…

Read more »

woman retiree on computer
Dividend Stocks

Should You Buy Telus Stock at $20?

Down 40% from all-time highs, Telus is a beaten-down TSX dividend stock that trades at a discount to consensus price…

Read more »

top TSX stocks to buy
Dividend Stocks

Here’s Exactly How $15,000 in a TFSA Could Grow Into $200,000

Canadians with sizeable TFSA balances today have utilized the full potential of the investment vehicle.

Read more »

clock time
Investing

Building Generational Wealth: Why Now Is Still the Time to Invest in Canadian Stocks

Here's why Canadian stocks should still be the core of your investment portfolio.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

The 1 Canadian Stock I’d Buy and Hold Forever in a TFSA

Don't get complicated. Consider this Canadian stock as a long-time buy.

Read more »