2 Great Warren Buffett Stocks to Buy Before They Raise Their Dividends Again This Month

Berkshire Hathaway’s long-held positions in Coca-Cola and recent accumulation of Domino’s are highlighted for likely dividend increases and attractive fundamentals: Coca-Cola (400M shares held) received $816M in dividends in 2025, reported a Q3 adjusted operating margin of 31.9%, raised 2025 free cash flow guidance to $9.8B, and carries an estimated 2025 payout ratio of ~69% with analysts forecasting 7.7% EPS growth in 2026 (stock trading ~24x forward). Domino’s, added starting mid-2024, reported Q3 carryout growth of 8.7% (vs 2.5% delivery), targets 3% same-store sales growth for 2026, has a sub-40% payout ratio and 1.7% yield with analysts projecting ~11% EPS growth in 2026 (trading <21x), implying room for mid-teens dividend increases on continued margin and unit growth.

Analysis

Market structure: Dividend-growth blue chips (KO) and mid-cap franchisors (DPZ) benefit — KO from currency tailwinds and scale; DPZ from fortressing and supply-chain margin leverage. KO’s ~69% payout ratio and $9.8B FCF outlook imply room for a ~5% hike on Feb 10; DPZ’s <40% payout and consensus +11% EPS for 2026 imply mid-teens dividend CAGR potential and share rerating under 21x forward. Rotation into reliable cash-flow names would compress risk premia for staples and modestly reprice duration-sensitive tech.

Risk assessment: Tail risks include commodity shocks (wheat/oil/sugar +10–15% could shave 200–400bp off DPZ margins), soda tax/regulatory moves or a sharp USD appreciation reversing KO currency tailwind. Near-term (days) event risk centers on KO Feb 10 and DPZ Feb 23 prints and Berkshire’s 13-F mid-Feb; medium-term (3–12 months) risk is franchisee profitability and margin squeeze; long-term (years) is secular demand shift away from sugary drinks. Hidden dependency: DPZ unit economics hinge on franchisee cash flow — rapid store growth can mask cannibalization.

Trade implications: Direct long ideas: KO as defensive income (target total return 10–15% 12-month) and DPZ for earnings-derivative growth (target 20–30% upside if execution continues). Use defined-risk option structures into earnings (debit call spreads) rather than naked calls; consider DPZ vs PZZA pair to isolate pizza category execution. Cross-asset: modest rotation into these names could lower demand for long-duration bonds by a few bps and tighten IG spreads for consumer staples issuers.

Contrarian angle: Consensus prizes dividend-stability but underestimates franchisee fragility and robotic/AI restaurant disintermediation long-term — DPZ’s moat may be overcredited if delivery economics shift. KO’s valuation (~24x) prices steady growth; a small miss or guidance cut would be disproportionately punished. The market may be underpricing a 5–10% downside tail on both names if commodity or regulatory shocks materialize, so prefer position size discipline and volatility-priced hedges.

Key Decisions for Investors

• Establish a 2–3% portfolio long in KO ahead of the Feb 10 Q4 report, target a 12-month total return of 10–15% (incl. ~5% expected dividend increase). Trim or stop-loss if management drops payout guidance such that FY payout ratio >75% or if KO trades below 20x forward EPS (signal of structural re-rating).
• Build a 1.5–2% notional long exposure to DPZ using defined-risk option entry: buy a 30–45 day debit call spread that spans ATM to +8–12% (enter 5–10 business days before Feb 23 earnings to capture upside but limit premium). Scale to full position only if Q4 same-store sales and guidance meet management’s 3% SSS target.
• Initiate a pair trade: long DPZ / short PZZA (equal dollar) sized at 1% net exposure to capture category execution dispersion over 3–12 months; unwind if DPZ margin contraction >200bp sequential or PZZA outperforms by >15% in 60 days.
• Hedge portfolio tail risk: buy cost-limited downside protection equal to 1–2% of portfolio (e.g., index puts or a put spread) through May 2026 to protect against commodity-driven margin shocks or broad market repricing following Feb earnings surprises.
• Monitor three catalysts in next 30 days before adjusting sizes: Berkshire 13-F filing mid-Feb (changes in BRK holdings), KO Feb 10 Q4/ dividend announcement, and DPZ Feb 23 Q4 results; increase exposure by up to 50% only if both companies reaffirm guidance and show sequential margin expansion.