Do you know what the biggest gimmick in the world of advertising is?

The “lifetime supply” sweepstakes.

And grandiose as the offer seems, rarely does anyone who wins one of these things use their rewards… or even want to.

I recently came across a Reddit thread regarding these lucky lifetime supply winners with nearly 13,000 comments.

Some of the winners had wholesome stories…

A lady won a lifetime supply of Rice-A-Roni on The Price is Right and has donated hundreds and hundreds of boxes to local soup kitchens in the years since.

Someone said that their grandfather, who was the only doctor in a small rural village in India, won a lifetime subscription to Reader’s Digest magazine back in the 1990s. He’d stack up the issues on a table in his waiting room, which turned into the village’s de facto library. Over the years, the literacy rates in the village soared. The guy said that when he’d visit his grandfather, many of the villagers spoke better English than his American classmates.

Some viewed their winnings as a curse…

A woman said she won a lifetime supply of apples from a local orchard by correctly guessing how many apples were in a barrel at a school festival. She now receives 110 apples per month from the orchard… but her family doesn’t know what to do with them.

Everyone in the household is sick and tired of apples and her neighbors no longer open the door when she knocks. They too are tired of the apples.

The overarching theme of the discussion was that the prizes weren’t nearly as great – or life changing – as the winners first thought they might be. After all, you only need so many Rice-A-Ronis… or Reader’s Digests… or apples.

But there is one thing where a “lifetime supply” should be on everybody’s list to achieve.

My Favorite ‘Lifetime Supply’

I asked my family what they’d want a lifetime supply of most, to see if they came up with anything meaningful.

My wife said ice cream. My daughter said pets. My son said tractors at first but then changed his pick to “pigs” once he heard my daughter’s answer.

My little girl asked me what I would pick and as I was thinking, she exclaimed, “I know! Money! You’d pick money. Then we could have the forever weekend!”

The “forever weekend” is what we call retirement in my household.

And I have to hand it to her. She knows her old man well.

I would pick money. Or, more specifically, passive income. That’s my goal, and it should be yours as well.

Buffett and Taste Fatigue

And as it turns out, one of the greatest investors of all time used his understanding of human nature to generate a dividend income stream that anyone would be envious of.

Berkshire Hathaway’s latest 13F filing showed that Buffett’s fourth-largest position is Coca-Cola (KO). According to Yahoo Finance, Buffett built that position with multiple purchases of the stock between 1988 and 1994. Buffett paid roughly $1.3 billion for his stake and has held onto it for decades. Today, it’s worth nearly $29 billion.

So, why did Buffett invest so heavily into Coca-Cola?

Unlike most other foods that people get tired of eating (as shown by the dissatisfied lifetime sweepstakes winners), he says that Coca-Cola has no taste memory.

Speaking to investors, Buffett said:

One thing that people don’t understand, cola has no taste memory. You can drink one of these at 9 o’clock, 11 o’clock, 5 o’clock… the one at 5 o’clock will taste just as good to you as the one you drank earlier in the morning. You can’t do that with cream soda, root beer, orange, grape, you name it. All of those things accumulate on you. Most foods and beverages accumulate on you. You get sick of them after a while.

Buffett also owns See’s Candies and he’s seen people, given the opportunity to have as much as they want during work conferences, quickly grow tired of the sweets after just a few days.

Coke is different.

Buffett continued, “There is no taste memory to cola. And that means that you get people around the world that are heavy users – that will drink five a day, or Diet Coke, maybe seven or eight a day of the sort. They’ll never do that with other products.”

He admitted that the outsized, per-capita consumption of Coke, because of no taste fatigue, is a major factor in his long-term bullish outlook on Coca-Cola.

It’s also why Coke has been able to sustainably grow its cash flows, and, therefore, pay a steadily rising dividend over the decades.

Today, Buffett owns 400 million shares of KO. Those shares pay him $776 million of dividends, annually.

That’s nearly 60% of his original investment.

Coca-Cola has raised its dividend every year that Buffett has owned shares. The stock is currently on a 62-year annual dividend increase streak. Coke’s five-year dividend growth rate is roughly 4%. At that rate, it will take another 12 years for the stock’s annual dividend to increase from $1.94 to $3.25… where Berkshire will be generating 100% of its original $1.3 billion investment in annual dividends.

What Would You Pick?

Can you imagine receiving your entire cost basis on an investment back – year in and year out – in dividends?

Buffett, more so than most, shows that patience pays off in the stock market.

His success with Coca-Cola goes to show that investors who understand human nature, and products/services that take advantage of it, can make investments that result in unfathomable riches – and dividends – by simply buying and holding the companies that sell them.

So, I ask you this: if you could win a lifetime supply of anything, what would it be?

Think about it. What do you truly believe that you’d never grow tired of?

If you’re a serious, long-term investor, the answer is passive income. It will always be passive income. At Wide Moat Research, we encourage readers to take that lesson to heart.

I promise you won’t get sick of it.

Regards,

Nick Ward
Analyst, Wide Moat Research