Warren Buffett Revealed the "Secret Sauce" to Berkshire Hathaway's Amazing Returns, Pointing to 2 Dividend Stocks

Key Points

• In his 2022 letter to shareholders, Warren Buffett celebrated Berkshire Hathaway’s 3,787,464% return, and noted consistently rising dividends in his “secret sauce.”

• Buffett singled out Coca-Cola and American Express, which had grown payouts by 836% and 637% since 1994, calling them “highly likely” to continue hiking dividends.

• These companies are well positioned to keep growing their dividends, thanks to growing earnings, low payout ratios, and shareholder-friendly management.

• 10 stocks we like better than Coca-Cola ›

Each year since 1977, Warren Buffett has written an annual letter to Berkshire Hathaway shareholders. In them, he explains investing decisions, touts wins, and takes responsibility for losses.

In his 2022 letter, the Oracle of Omaha had much to celebrate. Since Buffett took the helm in 1965, Berkshire Hathaway had returned 3,787,464%. For context, that's enough to turn every $1,000 invested in 1965 into $37,875,640 in 2022.

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Calling his own capital allocation decisions "no better than so-so," Buffett attributed these results to a dozen or so "truly good decisions."

Then he invited readers to "peek behind the curtain."

Image source: The Motley Fool.

The "secret sauce"

In his letter, under a heading titled "The Secret Sauce," Buffett invoked his 400 million-share investment in Coca-Cola (NYSE: KO). In 1993, Berkshire finished its seven-year buying spree of Coca-Cola shares. Berkshire paid $1.3 billion for them, which Buffett called "then a very meaningful sum at Berkshire."

In 1994, those shares paid Berkshire $75 million in dividends. And as Coca-Cola hiked its dividend each year, that income stream grew exponentially. By 2022, the dividend had grown to $704 million, thanks to dividend increases that Buffett called "as certain as birthdays."

Another "secret sauce" investment was American Express (NYSE: AXP), which, coincidentally, Berkshire also put $1.3 billion toward in the early 1990s. Calling it "much the same story," Buffett recounted how $41 million in dividends collected from it in 1995 had grown to $302 million.

In 2022, Buffett called both companies "highly likely" to keep growing payouts. History bore this out. Since 2022, Coca-Cola's dividend has grown by 21%, while American Express's dividend grew by a striking 91%.

Of course, Buffett said this three years ago, wrapping up the secret sauce section of that year's letter by saying: "The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders."

Now, in late 2025, are Coca-Cola and American Express still "highly likely" to keep raising dividends? I think so.

Two resilient income machines

Coca-Cola has increased its dividend for 63 years running, including its most recent 5.2% hike announced in February. That's a record spanning the stagflation of the 1970s, the collapse of the 1990s tech bubble, the 2008-2009 Great Recession, and, most recently, the COVID-19 pandemic.

Nothing is guaranteed in investing, but Coca-Cola looks highly likely to continue raising dividends in the years ahead. The company grew its earnings by 58% year over year in its most recent quarter, despite facing currency headwinds. Its payout ratio of 70.5% means it spends that much to pay out those dividends. That's a somewhat higher percentage than many income investors prefer to see. However, that's down from its 2022 average of 80%. By that metric, KO is better positioned for future dividend hikes than at the time of Buffett's letter.

For American Express, the case is even more straightforward. The company's payout ratio is a mere 21.5%, meaning it could theoretically double its dividend tomorrow and still only be spending 43% of its net income on dividends. American Express reported record revenue in its July earnings report, and has $57.6 billion in cash on hand. Check out the second-quarter earnings-per-share figures below.

Earnings per share

Data source: Company filings.

As you can see, these companies have been growing earnings consistently, with one exception. In Q2 2025, American Express saw earnings fall by 2%, but that's because its Q2 2024 earnings were somewhat inflated by the sale of its fraud prevention subsidiary, Accertify, the terms of which were not disclosed. Excluding the sale, earnings for American Express rose 17% year over year last quarter. The company's underlying business appears as strong as its robust earnings growth suggests; it issued 3.1 million new cards in Q2, while net card fees reached record levels.

If there's a wrinkle with American Express, it's that shares yield just 1% today, compared to the 1.2% yield paid by the average S&P 500 company. Its share price has nearly doubled since early 2022, driving down the dividend yield in the process. However, in the company's Q4 2024 earnings call, management predicted (correctly) a 17% dividend increase in 2025, and laid out a path to more than double its dividend by keeping payout ratios in the 20%-25% range. It seems they've delivered on that.

As for Coca-Cola, its current yield of 3% is well above the S&P 500 average. While the company has not issued dividend guidance in recent earnings reports, CFO John Murphy spoke in Q4 2024 of the company's "unwavering priority to grow our dividend, as we've done for 62 consecutive years." That streak is now 63 years, and management will be extremely reluctant to break it unless the company comes under extreme financial duress. That's far from being the case today. Coca-Cola's underlying business continues to grow, with 5% organic revenue growth in Q2.

With their history of payout increases, growing earnings, and dedication to increasing dividends, these two "secret sauce" companies are solid plays for income-oriented investors.

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William Dahl owns shares of Coca-Cola. American Express is an advertising partner of Motley Fool Money. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.