Buffet Holds Stake in 6 Dividend-Rich Shares. This Selection Offers Optimal Reward.
Warren Buffett may be known for numerous things, yet he's not categorized as an income investor. This billionaire investor doesn't require supplemental income. Similarly, Berkshire Hathaway, with a significant market capitalization ranking eighth among American corporations, doesn't seek additional income.
However, Buffett has a proclivity for dividend stocks. Berkshire Hathaway's portfolio stands out with six stocks that offer high dividends, defined as at least double that of the S&P 500.
Buffett's High-Yield Six
Let's delve into Buffett's high-yield six, arranged in ascending order of forward dividend yield. Kraft Heinz takes the top spot with a yield of 5.23%. Berkshire's substantial ownership in the food company results in its appearance as a subsidiary on the conglomerate's website.
Chevron holds the second position, offering a forward dividend yield of 4.09%. This oil and gas company is Berkshire's fifth-largest holding.
Following Chevron, Diageo comes in third, with a yield of 3.47%. As one of Berkshire's smallest positions, it makes up less than 0.1% of the total portfolio.
Ally Financial ranks fourth with a forward dividend yield of 3.37%. Buffett initiated an investment in Ally during the first quarter of 2022.
Citigroup takes the fifth position, with a forward dividend yield of 3.27%. Similar to Ally, Buffett initiated a purchase of Citigroup in early 2022.
At the bottom of the list, Coca-Cola offers a yield of 3.1%. Regardless of its position in the ranking, Coca-Cola holds the title of being the stock Buffett has owned the longest.
Comparing the Six
Dividend yields aren't the only measuring stick for these stocks. Let's assess their performance across various fronts.
Coca-Cola leads the group with the strongest dividend history, expanding its dividend for 62 consecutive years, making it a member of the Dividend Kings. Chevron boasts an amazing track record as well, with 37 consecutive years of dividend increases.
High-yield bank stocks emerge as the standout choices based on valuation. Ally Financial boasts a low forward price-to-earnings ratio of 7.9, while Citigroup's ratio sits around 9.4. Kraft Heinz's shares trade at a slightly higher ratio of roughly 9.8 times forward earnings.
Ally and Citigroup show promising growth prospects for the upcoming year, with analysts projecting a 48.9% earnings growth for Ally and 22.1% for Citigroup. Chevron comes in third place, forecasted to record an 9.2% earnings growth.
The Dream Team
Buffett's high-yield dividend stocks offer several appealing investment options. If forced to pick a single standout stock, I'd choose Chevron.
Buffett's investment in Chevron is substantial, totaling over $18.9 billion. Chevron boasts a stellar dividend yield and a strong track record of dividend increases. It's highly likely that the company will continue its streak of dividend hikes.
Although Chevron isn't the most inexpensively priced of Buffett's high-yield stocks, it's not overly expensive. Shares of the oil and gas company are trading at around 13.3 times forward earnings, significantly lower than the S&P 500 energy sector's average forward earnings multiple of 15.1.
As we've seen, analysts are optimistic about Chevron's growth prospects in the near-term. I share their outlook, and the incoming Trump administration should also foster a favorable regulatory environment for the oil and gas industry in general.
Despite not being classified as an income investor, Warren Buffett demonstrates a preference for dividend stocks, with Berkshire Hathaway holding six high-yield stocks in its portfolio. Additionally, Buffett's investment in Chevron, offering a forward dividend yield of 4.09%, is substantial, totaling over $18.9 billion.
