Tesla CEO Elon Musk is no stranger to eye-popping sums of money. After all, he currently holds the title of the world’s wealthiest person with a staggering net worth of US$373 billion.
But even for Musk, some financial figures are enough to raise an eyebrow.
Back in 2023, reports surfaced that Berkshire Hathaway, the investment empire of legendary investor Warren Buffett, earned US$704M in dividends from its Coca-Cola (KO) holdings in one year. When Musk heard the news, he couldn’t resist commenting on X, “Berkshire Hathaway high on Coke.” The US$704M figure was calculated based on Berkshire’s 400 million shares in Coca-Cola and the US$0.44 per share that Coca-Cola paid out in quarterly dividends in 2022.
Fast forward to today, and that dividend payout has climbed even higher. According to Berkshire’s latest 13F filing, the company still holds 400 million shares in Coca-Cola. According to Coca-Cola’s latest numbers, it pays out an annual dividend of US$2.04 per share with a quarterly payout. This means that Coca-Cola pays Berkshire approximately US$816M in annual dividends — all while Buffett sits back in his chair and waits. For context, US$816M annually equates to US$2,235,616 daily.
Buffett’s Coca-Cola investment has become a remarkable source of passive income — and there are ways for you to build your own. Here are three strategies to start generating passive income.
Dividend Stocks
Investing in the stock market has never been more accessible, allowing everyday investors to create passive income streams through dividend-paying stocks — just like Warren Buffett. Companies that consistently pay dividends enable investors to earn income without having to sell their shares. High-quality companies like Coca-Cola can even increase these dividends over time, amplifying the income stream.
Buffett highlighted the power of this approach in his 2022 letter to shareholders, where he wrote, “The cash dividend we received from Coke in 1994 was US$75 million. By 2022, the dividend had increased to US$704 million. Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke’s quarterly dividend checks. We expect that those checks are highly likely to grow.”
Indeed, Coca-Cola has raised its dividend every year for the past 62 years, demonstrating a strong commitment to shareholders.
However, keep in mind that past performance isn’t a guarantee of future results. When buying a dividend stock, focus on more than its payout or yield. Take the time to understand the company’s business fundamentals and, if you’re following Buffett’s lead, look for companies with durable and competitive advantages.
Real estate
Real estate is another popular option since well-chosen properties can provide investors with a steady stream of rental income. It’s also considered a reliable hedge against inflation, with property values and rental income often rising alongside the cost of living.
While the prospect of collecting monthly rent checks sounds appealing, being a landlord has its challenges. Property ownership involves ongoing responsibilities like handling maintenance issues — from fixing leaking faucets to managing major repairs — as well as dealing with tenant-related concerns, which can sometimes be time-consuming and unpredictable.
However, you don’t need to be a landlord to start investing in real estate. There are plenty of real estate investment trusts (REITs), as well as crowdfunding platforms that allow you to earn rental income without becoming a landlord.
CIBC Investor’s Edge, for instance, increases your exposure to real estate through ETFs, mutual funds, REITs and other investments. These funds target potential annual returns from 3% to 12%. Investors in these funds can earn passive income through monthly, quarterly or annual distributions while making a positive impact on Canadian communities. Take note that funds with higher yields tend to also have higher fees.
Another option is Questrade, which targets both novice and experienced investors by offering commission-free stock and ETF trades along with low fees. It offers diverse account options while supporting USD when trading U.S. stocks in RRSPs and TFSAs.
Tax-free savings account options
A tax-free-savings account (TFSA) offers a low-risk way to generate passive income while keeping your funds accessible. These accounts usually provide higher interest rates than traditional savings accounts, allowing your money to steadily grow without being tied up in long-term investments.
A TFSA offers versatility and can hold most investment assets, including cash, bonds, GICs, mutual funds and stocks. A self-directed TFSA puts you in the driver’s seat in deciding where your money will go, and investors can open one through an independent online brokerage, or their usual bank’s discount brokerage.
One example of a Canadian discount brokerage is BMO InvestorLine Self-Directed. It allows you to trade over 80 ETFs commission-free, trade U.S. stocks and ETFs with direct linking for BMO clients.
There are also non-bank options like Wealthsimple, which offers easy self-directed investing options. These include no trading fees to buy and sell stocks and ETFs, integrated trading support for over 50 cryptocurrencies and a starting investment as low as $1, making it beneficial for new DIY investors.
Sources
1. Bloomberg: Bloomberg Billionaires Index
2. TipRanks: Coca-Cola (KO) Price & Analysis
3. Ganaraska Grain: Warren Buffett’s Berkshire Hathaway Earns $93,150 Every Hour from Coca-Cola Dividends Alone
4. Berkshire Hathaway: Berkshire’s Performance vs. the S&P 500
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.