This top Warren Buffett stock has only beaten the market in 3 of the last 10 years

When billionaire investor Warren Buffett makes a move, investors take notice, with many of them imitating his decisions and buying and selling the same stocks. He has generated massive wealth over the years due to his investment acumen and his long-term buy and hold strategy.

But that doesn’t mean that every stock in the Berkshire Hathaway the portfolio was definitely an excellent investment that beat the market. In many cases, Berkshire owns safe dividend stocks that can provide consistent payouts, long-term stability and value preservation — but not much in the way of big capital gains.

So if you’re looking at Buffett’s stock purchases as ways to find the next great stock to own, you might be disappointed, because that’s not necessarily his strategy or goal when making stock picks . In fact, one of his most loved and favorite stocks has also been a laggard investment compared to S&P 500.

Coca-Cola is a top stock and prototype Buffett

Coca cola (K.O 0.66%) is an iconic beverage brand with a logo known around the world. Buffett loves the company’s products, and for years, Coca-Cola has been one of Berkshire’s most important holdings. Today, it represents almost 9% of the fund’s total portfolio.

It has generated more than $40 billion in revenue in each of the past two years, and with strong profit margins of more than 20%, it ticks many of the things Buffett looks for when buying a stock.

But if you’ve owned Coca-Cola stock for the past decade, you might be disappointed by its performance. While it generates consistent returns and the stock is a dividend king, making it an ideal option for income investors, its total returns just haven’t been all that impressive.

Coca-Cola has consistently outperformed the S&P 500

An effective way to assess a stock’s returns is to compare it to the S&P 500. The broad index can be a good default option for investors, giving them a way to generate decent returns (it has had a long-term average return of 9 .7%) while keeping overall risk low. If you don’t expect to be able to beat it, then you’re probably better off just holding the index.

Here’s how Coca-Cola stock has performed compared to the S&P 500 over the past 10 years.

Data source: YCharts.

In only three of the past 10 years has Coca-Cola stock outperformed the market. And over the past decade, Coca-Cola stock has risen 67% in value, while the more diversified S&P 500 has generated gains of more than 180%. If you include dividends, Coca-Cola’s total return rises to 130%, but investors would still have been better off with the index – its total earnings are still much higher at 240%.

Does this mean Coca-Cola stock is a bad buy?

Depending on your investment strategy, Coca-Cola may or may not be an optimal stock to own. It’s incredibly valuable for risk-averse investors who just want to collect a dividend and not worry about the markets. The big advantage it offers investors is stability. The one thing you can spot from Coca-Cola’s comeback over the past 10 years? More than once the stock fell by double digits.

For investors nearing retirement who don’t want to risk their savings, Coca-Cola can be an extremely valuable investment worth holding on to. You may miss out on some gains by going with Coca-Cola, but given its stability, it may be a safer option than the S&P 500, which will be more susceptible to market conditions.

Coca-Cola may not be a huge growth stock with huge potential, but the business is still solid and can be counted on for consistently strong financials and recurring dividend income.