Warren Buffett is nobody’s fool, that’s for sure.coke-stock

Yet every investor has his struggles. Buffett has taken flack for his IBM (NASDAQ: IBM) and American Express (NYSE: AXP) positions, which are down 15% and 8% over the last six months, respectively.

Then there’s Coca-Cola (NYSE: KO). Coke stock is up just 5% over the last 12 months, while top rival PepsiCo (NYSE: PEP) is up 17%.

But the one thing to remember is that Buffett is a long-term investor. He has owned 400 million shares of Coca-Cola since the fourth quarter of 2006. Heading into 2015 it was still his second largest holding.

And since the start of 2007, Coke has outperformed both Pepsi and the S&P 500 on a total return basis. Shares of Coke are up 113%, while Pepsi is up 94% on a total return basis. That 19% difference might not seem like much, but in a million dollar portfolio it’s still $190,000.

Both beverage giants trade right at 19 times forward earnings, but they are two very different companies, despite the ever raging Coke vs. Pepsi debate.

Coke is the leader in carbonated beverages in terms of market share. Pepsi, on the other hand, is the largest snack foods company thanks to its Frito-Lay division.

And while Pepsi continues to defend its structure as a beverage and snack foods business, Coke is digging deeper into beverages, setting itself up to rule the entire beverage industry.

In early 2014, Coca-Cola inked a decade-long agreement with Keurig Green Mountain (NASDAQ: GMCR) to develop Coke products for the upcoming Keurig cold brew system. It also took a 16% stake in Keurig.

Keurig is undoubtedly the at-home beverage leader, with a loyal following and a large installed base of at-home brewing machines. The cold brew system is expected to help boost its revenues nicely, but Keurig is also benefiting from other areas, like adding Campbell Soup to its product line.

And let’s not forget Coke’s other beverage investment in 2014. It took a 16.7% stake in Monster Beverage (NASDAQ: MNST).

As part of that deal, Coke is transferring its energy drink business to Monster. In return, it’s getting Monster’s non-energy drinks business. Monster is one of the leaders in the oligopoly that is the energy drink industry. And with the addition of Coke’s energy drink business, it will become an even larger player.

Granted, one of Coke’s big headwinds is consumers’ transition away from soft drinks. However, I’m encouraged by its initiative to diversify into faster growing parts of the beverage market.

And there are a few things that Coke can do to help its cause. One is to cut costs. It’s already identified certain non-bottling expenses and has plans to automate its warehouse operations.

Then, in terms of revenue growth, international markets are still an attractive opportunity – especially in emerging markets where the consumption of soft drinks per capita is still low compared to developed nations.

Last but not least, there’s the dividend. Coke is again the leader here. Its $1.32 annual dividend payout equates to a healthy 3.25% dividend yield, while Pepsi is paying a 2.75% yield. Coke has upped its dividend for 52 straight years now, with Pepsi’s streak being 42 years.

Coke is still a dividend paying machine. It controls the carbonated beverage market and generates plenty of cash flow to support its dividend, while also having plenty left over to make investments in faster growing parts of the beverage industry.

Plus, Warren Buffett likes wide-moat businesses, and Coke’s moat is still wide enough to make it a wise investment.

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Published by Wyatt Investment Research at