published 29 December 2022
While Berkshire Hathaway (BRK.B (opens in new tab)) doesn’t pay a dividend, more than half of the stocks in the holding company’s nearly $300-billion equity portfolio do. And the best Warren Buffett dividend stocks produce a substantial amount of income for the Oracle of Omaha.
The best dividend stocks can create impressive total returns (price plus dividends) for investors over the long term, and that’s certainly been the case with Berkshire Hathaway. Over the last 10 years, BRK.B has delivered a total return of 13.1%, compared to the S&P 500 Index’s 12.6% total return. And in the last three months during extreme market volatility, BRK.B’s total return is 10.8%, nearly 11 percentage points higher than the broad market.
Here’s what Buffett had to say about dividends in his 2020 letter to shareholders (opens in new tab):
“BNSF has paid substantial dividends to Berkshire – $41.8 billion in total. The railroad pays us, however, only what remains after it both fulfills the needs of its business and maintains a cash balance of about $2 billion,” Buffett wrote. “This conservative policy allows BNSF to borrow at low rates, independent of any guarantee of its debt by Berkshire.”
And that’s an internally owned business. The company’s dividend-paying stocks are expected to generate more than $6 billion in dividend income over the next 12 months, with 71% coming from just five stocks.
Of all the dividend stocks held by Berkshire Hathaway, Apple (AAPL (opens in new tab)) is one of the few that doesn’t yield more than the S&P 500’s current 1.7% yield. For this reason, it isn’t one of the best dividend stocks to buy from the Berkshire Hathaway equity portfolio. However, all the names featured here have market-beating yields. With that in mind, here are seven of the best Warren Buffett dividend stocks.
Data is as of Dec. 28. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks are listed in order of lowest to highest dividend yield. Berkshire Hathaway portfolio data is provided by WhaleWisdom.com (opens in new tab).
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Procter & Gamble Market value: $360.1 billionDividend yield: 2.4%Percentage of Berkshire Hathaway portfolio: 0.01%Berkshire Hathaway ownership stake: 0.01%Berkshire Hathaway doesn’t have much of a stake in Procter & Gamble (PG (opens in new tab), $151.96). It is the holding company’s eighth-smallest position.
Two of the challenges P&G faces are ongoing supply-chain disruptions and inflationary pressures. Still, Raymond James analyst Olivia Tong expects “PG to outperform by leveraging its infrastructure, driving more supply chain improvement, a key focus area, and maintaining investment levels.” Tong has an Outperform rating on PG, which is the equivalent of Buy.
Pricing power is something that separates good companies from great ones. Tong believes that despite inflation, Procter & Gamble maintains strong pricing power.
“Supported by its innovation pipeline, we expect pricing to contribute seven points to fiscal 2023 sales growth, and importantly PG is holding market share globally despite a portfolio that skews more premium and normalizing private label production,” Tong says.
One thing investors might not realize about Procter & Gamble is that its e-commerce business represents 14% of total company sales. Of course, plenty of retailers don’t generate that much from their online sales. Nevertheless, it’s an impressive number that continues to grow. In fiscal 2022 (June year-end), its e-commerce sales rose 11% over 2021.
As for PG’s place on this list of best Warren Buffett dividend stocks, the company paid out $8.8 billion in dividends and $10 billion for share repurchases in fiscal 2022. Plus, Procter & Gamble is a Dividend King, having increased its annual payout for 66 years straight, while paying a dividend for 132 consecutive years. Only six other U.S.-listed stocks have paid a dividend for more than 132 years.
Procter & Gamble remains a very attractive long-term hold if you’re an income investor.
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Coca-Cola Market value: $274.9 billionDividend yield: 2.8%Percentage of Berkshire Hathaway portfolio: 7.6%Berkshire Hathaway ownership stake: 9.2%Coca-Cola (KO (opens in new tab), $63.57) is one of Berkshire’s oldest holdings and one of the best Warren Buffett dividend stocks. The Oracle of Omaha first started buying the beverage giant’s stock in 1988, building his stake to 23.4 million shares by the end of 1989 – a position valued at roughly $1.8 billion.
KO is now Berkshire’s fourth-largest holding, valued at $22.4 billion at the end of Sept. That’s a compound annual growth rate of around 8% – slightly less than the broad market.
However, that doesn’t take into account the company’s big dividend, which currently arrives at an annualized payout of $1.76 per share. Based on Berkshire’s 400 million shares, it gets $704 million in dividends annually from KO. In other words, Buffett’s total cost to buy the KO stake he had accumulated by the end of 1989 would be paid off in just over two years solely from the current dividend payment.
It’s a miracle of compounding in action.
In September, Coca-Cola promoted the head of its Eurasia & Middle East unit, Evguenia Stoichkova, to president of the company’s Global Ventures unit. This segment includes Costa Coffee and Innocent, as well as its investment in Monster Beverage (MNST (opens in new tab)).
Coca-Cola also continues to dip its toes into alcoholic beverages.
In September, it launched its Fresca Mixed line of canned cocktails in partnership with Constellation Brands (STZ (opens in new tab)). The first flavors are Vodka Spritz and Tequila Paloma, 100-calorie, zero-sugar, 5% alcohol-by-volume drinks that combine Fresca with vodka and tequila. It now has four ready-to-drink cocktails out there, with more likely to come.
James Quincey, CEO of Coca-Cola, sees alcohol as the company’s fourth bucket. Its biggest bucket, however, remains its Coke brand. The second is Fanta, Sprite and Tea, while the third is creating a scale for the first two buckets.
“If you’re aiming to grow revenue of 5% to 6%, Coke is going to be a piece of that,” Quincey said at the Barclays Consumer Staples Conference in September, as reported by Food Business News (opens in new tab). “In the rest of the portfolio, each piece of the portfolio is only going to be decimals. Nothing is going to move the needle that much.”
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Chevron Market value: $342.2 billionDividend yield: 3.2%Percentage of Berkshire Hathaway portfolio: 8.1%Berkshire Hathaway ownership stake: 8.5% Energy stocks had an outstanding year in 2022. Chevron (CVX (opens in new tab), $176.98) is no exception. It’s on pace to end the year with a total annual return of 51%. That’s about 71 percentage points better than the entire U.S. market.
The energy giant is working hard to get the attention of investors.
“We’re trying to win back investors to energy,” Pierre Breber, vice president and chief financial officer at Chevron, told Fortune’s Cheryl Estrada (opens in new tab) in early October. “Energy represents about four and a half percent of the S&P 500 by market cap. But we’re more than double that by earnings and free cash flow. So there’s a big opportunity in energy.”
As Breber told Fortune, the company’s dividend is sacrosanct. It’s grown the payout for 35 consecutive years, making it one of the best Warren Buffett dividend stocks. And paying nearly double yield of the broader S&P 500, Chevron makes a lot of sense in this kind of market.
Wells Fargo analyst Roger Read is upbeat toward Chevron, giving the stock an Overweight (Buy) rating. Read likes Chevron because it’s one of the best-operated oil & gas giants. The analyst expects Chevron to earn $17.52 a share in 2022, $14.90 in 2023, and $11.77 in 2024. For reference, CVX recorded earnings of $8.14 per share in 2021.
Plus, Chevron remains one of the best value stocks, trading at just 10.7 times its 2023 earnings estimate.
That’s very reasonable.
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HP Market value: $26.1 billionDividend yield: 4.0%Percentage of Berkshire Hathaway portfolio: 0.9%Berkshire Hathaway ownership stake: 9.9%Berkshire Hathaway is HP’s (HPQ (opens in new tab), $26.54) largest shareholder, slightly ahead of Vanguard Group. The holding company first started buying HPQ in the first quarter of 2022. Based on the average estimated price paid for the HPQ shares, Buffett is currently losing money on his position in the printer and computer legacy business of Hewlett-Packard.
HP might seem like a strange stock for Berkshire to be accumulating. Most retail investors consider the company to be the modern equivalent of the horse and buggy. Translation: its best days are behind it.
However, the valuation has Berkshire subsidiary New England Asset Management accumulating HPQ shares throughout 2022. It bought more than 16.3 million shares in Q2, adding to the nearly 140,000 shares it bought in Q1.
In addition to its attractive valuation – HPQ is trading at just 8.2 times forward earnings – the company is known for rewarding its shareholders. HP increased its quarterly dividend by 5% in November, which follows a 29% hike in October 2021. The dividend yield is very healthy at 3.9%, more than double the dividend yield for the S&P 500. In addition to paying out $1.04 billion in dividends in fiscal 2022, it also repurchased $4.3 billion of its stock.
With $3.1 billion in cash on its balance sheet at the end of its fiscal year, it has plenty to continue paying the healthy dividend – and keep HP on this list of the best Warren Buffett dividend stocks. Based on Berkshire’s 121 million HPQ shares owned, it will receive more than $121 million in dividends from HP over the next year.
Buffett’s more than fine to get paid to wait for the stock to come around.
Meanwhile, Argus Research analyst Jim Kelleher has a Buy rating and $48 price target on the stock, almost double where it’s currently trading.
Amid softening consumer and enterprise PC demand, management is “taking action to mitigate near-term market headwinds,” Kelleher writes in a note to client, including reducing headcount. “However, for the long term, we expect HP’s personal systems business to operate at high levels relative to the pre-pandemic period. The hybrid workplace is here to stay, and HP is well positioned to serve all aspects of the home, hybrid, and enterprise print and PC markets.”
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Kraft Heinz Market value: $49.5 billionDividend yield: 4.0%Percentage of Berkshire Hathaway portfolio: 3.7%Berkshire Hathaway ownership stake: 26.6%Consumer staples stocks have gotten expensive in this volatile market. Yet, they’re considered a bastion of safety in a stormy sea.
“Relative valuation levels for [consumer] staples are daunting; now even richer than the onset of the last recession,” Goldman Sachs analyst Jason English said in October.
Still, English upgraded Kraft Heinz (KHC (opens in new tab), $40.44) to Buy from Neutral (Hold), saying that “potential upside is not priced in.” The analyst also takes comfort “in the still-subdued promotional and private label environment within its categories and its below-average volume losses in measured retail.”
KHC shareholders can take comfort in the fact that the stock hit a floor around $30 in early October and has since rallied nearly 25%. In spite of this, shares are trading at just 14.7 times 2023 earnings estimates.
Meanwhile, Berkshire Hathaway shareholders can be secure knowing that KHC will remain one of the best Warren Buffett dividend stocks. “KHC has used excess cash and proceeds from divestitures to reduce leverage,” says Argus Research analyst Chris Graja (Hold). He adds that the company has reiterated its goal to reduce debt and maintain its dividend, which it has done in recent quarters. “Financial strength is improving. Stronger organic volume could be a catalyst for an upgrade,” Graja says.
Over at Deutsche Bank, analyst Steve Powers is far more enthusiastic about the maker of Kraft Mac & Cheese and Heinz Ketchup. He sees a strong year ahead in 2023 thanks to a big contribution from the U.S. market. Powers rates it a Buy with a $47 target price, which gives shares implied upside of more than 16%.
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Ally Financial Market value: $7.0 billionDividend yield: 5.1%Percentage of Berkshire Hathaway portfolio: 0.3%Berkshire Hathaway ownership stake: 9.1%Ally Financial (ALLY (opens in new tab), $23.52) – the company that used to be known as GMAC Financial Services until its name change in 2010 – is down nearly 41% in 2022.
Berkshire has been building a stake in the financial services firm amid the selloff. Buffett acquired almost 9 million shares in the first quarter of 2022, and bought another 21 million shares in Q2. Its total holdings at the end of the third quarter remained at 30 million shares. That’s the holding company’s version of dollar cost averaging.
Ally raised its quarterly dividend by 20% in January 2022. Its annualized dividend of $1.20 per share now yields a healthy 5.1%.
At the same time it announced the dividend increase, ALLY said it had completed its $2 billion share repurchase program for 2021. As a result, it authorized a new $2.0 billion share repurchase program through the end of this year. Through Q2 2022, it had repurchased $1.18 billion of the $2 billion at an average price of $42.90 a share.
Ally shareholders, including Buffett, hope the share price recovers to deliver a positive return on their investment.
Analysts remain upbeat about ALLY’s future prospects. The consensus recommendation of the 20 analysts covering Ally Financial that are tracked by S&P Global Market Intelligence is Buy. Plus, the average price target stands at $32.40, which represents implied upside of nearly 38% over the next 12 months or so.
Jefferies analyst John Hecht has a Buy rating on ALLY, with an above-consensus $40 target price. Hecht sees the environment for auto loans getting tougher as a possible recession looms. As a result, the analyst expects net charge-offs of 0.8% on Ally’s auto loans and 0.45% overall.
“In the context of a rising rate/macro backdrop, we believe ALLY remains a generally stable business with core fundamental growth in originations, diverse revenue/product stream and disciplined underwriting,” Hecht says.
And given the 2022 slump, the stock is a bargain buy right now. Ally trades at just 0.69 times book value, lower than it’s been since 2016.
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Paramount Global Market value: $10.6 billionDividend yield: 6.0%Percentage of Berkshire Hathaway portfolio: 0.6%Berkshire Hathaway ownership stake: 16%In early October, David Nevins, the head of Showtime, left the company after running the premium network since 2016. The speculation is that Paramount Global (PARA (opens in new tab), $16.11) will merge Showtime with Paramount+, the company’s streaming platform. Although nothing’s been decided by company management, it would enable Paramount+ to better compete with its larger streaming competitors.
Currently, Paramount+ has 43.3 million global subscribers, aiming to reach 100 million by 2024. Adding Showtime to Paramount+ would certainly help that cause.
Needham analyst Laura Martin has a Buy rating and $36 price target on PARA stock, more than 120% above its current price. The analyst believes Paramount Global is the most attractive takeover target in her media coverage. However, the question remains as to whether Shari Redstone, non-executive board chair and CEO of National Amusements, Paramount’s controlling shareholder, is willing to put the company up for sale.
“If [Shari] Redstone would sell, there is no more attractive acquisition target in our coverage universe, we believe,” Martin wrote in an Oct. 7 research report.
“In addition to being small and inexpensive, PARA owns one of the most valuable TV and film libraries in the media business, worth well above MGM’s $8.5 billion sale price to Amazon.com (AMZN (opens in new tab)), we believe. In addition, from a free-cash-flow-synergy point of view, any strategic buyer could cut material costs out of PARA’s streaming and film businesses, we estimate. Logical buyers include AMZN, Apple, Comcast (CMCSA (opens in new tab)) & Warner Bros. Discovery (WBD (opens in new tab)).”
While Paramount Global isn’t a big part of the Berkshire portfolio, it is one of 12 companies where it has more than a 10% ownership stake.
Yielding 6.0%, Paramount Global pays stakeholders like Berkshire Hathaway handsomely to wait for a potential buyout. Based on this, it’s also the best Warren Buffett dividend stocks on this list for yield.
Sponsored Content (opens in new tab) Will has written professionally for investment and finance publications in both the U.S. and Canada since 2004. A native of Toronto, Canada, his sole objective is to help people become better and more informed investors. Fascinated by how companies make money, he’s a keen student of business history. Married and now living in Halifax, Nova Scotia, he’s also got an interest in equity and debt crowdfunding.