Berkshire Hathaway Inc. (BRK-A) and Warren Buffett generally hold close to 40 different stock positions in the Berkshire Hathaway portfolio of U.S.-listed shares. Anyone who has followed Buffett's investment holdings through time knows that he loves to invest in dividend stocks. It also happens that 24/7 Wall St. loves dividends as well.
We wanted to take a look at the eight highest-yielding dividends, since that was effectively the top 20% of the Berkshire Hathaway Inc. (BRK-B) holdings. You will see that some of these stakes actually might not be growing inside the Berkshire Hathaway portfolio. Yet dividend investors might take careful note here that, if it is good enough for Warren Buffett, then perhaps the selection is good enough for the rest of us.
As a reminder, Buffett tries to take a very long-term approach. His new portfolio managers may be trading more nimbly in and out of positions, but Buffett has been known for his "buy and hold forever" mentality. He prefers quality over price, and with quality, one key metric is how solid the dividend is. Buffett often likes to buy more shares when they "go on sale" after a market correction as well.
These highest-yielding stocks inside of Berkshire Hathaway all fit into a "buy and hold forever" strategy for most investors. This even holds true for the stakes that have been lowered to very small positions inside the Berkshire Hathaway portfolio.
We recently evaluated the top 10 highest-yielding dividend stocks in the S&P 500, but this was based on the safety of the highest-yielding dividends paying more than 3% rather than just the absolute highest yields available. ADRs were not counted to keep the review consistent with dividend stability in dollars.
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The following have been organized by the dividend yield, and the share price and the trading range of the past year are shown, along with the size of Buffett's stake. In order to indicate whether these dividends are safe, we also included the price-to-earnings (P/E) ratio based on this year's expected earnings, as well as the income payout ratio and the implied upside in the stock to the Thomson Reuters consensus one-year share price target from Wall Street analysts.
These are the eight highest-yielding dividend stocks owned by Warren Buffett and Berkshire Hathaway.
> Buffett's Stake: 49.25 million shares, or $3.54 billion
> Dividend Yield: 2.6%
> Share Price: $71.87
> Year Range: $67.37 to $79.96
The Wal-Mart Stores Inc. (WMT) stake has been raised through time at Berkshire Hathaway. Buffett likes to bet on America, and this is the largest retailer of them all. Its market cap of $234 billion dwarfs every competitor by far. Buffett even has tolerated and grown his stake in Walmart when labor issues have added negative public relations around the company. Walmart also is buying back large amounts of stock, and its dividend yield outpaces almost all retail companies. Walmart is valued at just under 14 times earnings, and it pays out about 36% of normalized income as dividends. The consensus price target of $81.73 for the stock implies upside of almost 14%.
7. United Parcel Service
> Buffett's Stake: 59,400 shares, or only $5.4 million
> Dividend Yield: 2.7%
> Share Price: $90.03
> Year Range: $69.56 to $92.12
United Parcel Service Inc. (UPS) has dwindled to a tiny stake in the Berkshire Hathaway public holdings. We often wonder two things: 1) why does Buffett even bother keeping such a small position, and 2) why he does not buy significantly more shares. The company has only one major competitor outside of the U.S. Postal Service, and it fits into the forever category, until Star Trek transporters are invented a few hundred years from now. UPS has a market cap of $84.5 billion, which would be large enough for Buffett to own much more stock if he so chooses. Unfortunately, and perhaps the reason Buffett is not buying more shares, UPS is not a cheap stock, at almost 19 times earnings. The shipping giant pays out about 52% of normalized earnings as dividends, and the consensus price target of $95.95 implies upside of about 6.6%.
6. Wells Fargo
> Buffett's Stake: 463.13 million shares, or more than $18.8 billion
> Dividend Yield: 2.9%
> Share Price: $40.62
> Year Range: $31.25 to $44.79
Wells Fargo & Company (WFC) has been referred to as Warren Buffett's favorite bank. To prove the point, Buffett keeps adding to his stake each and every quarter, and it is the largest stock holding of Berkshire Hathaway that is not a subsidiary. The bank has a market cap of almost $216 billion, and that is even after shares have pulled back. To prove how safe this bank is, it was our safest large bank for 2013 and 2012, and Wells Fargo was also the first major bank to trade at a premium to book value after the recession. The stock trades at 10.5 times earnings, it pays out only about 31% of normalized income as dividends and the consensus price target of $46.16 implies that there is still upside of more than 13%.
5. Johnson & Johnson
> Buffett's Stake: 327,100 shares, or only $28.3 million
> Dividend Yield: 3.0%
> Share Price: $86.59
> Year Range: $67.80 to $94.42
Johnson & Johnson (JNJ) used to be vastly larger stake and has shrunk to a tiny position. The consumer products and health care giant now has grown past its quality control issues inside the over-the-counter section of its health care business, and it has a market cap of $244 billion. The company also is one that keeps raising its dividend year in and year out, problems or not. It trades at almost 16 times earnings. It pays out about 48% of normalized income as dividends, and its consensus price target of $93.56 implies upside of about 8%.
> Buffett's Stake: 400 million shares, or $14.82 billion
> Dividend Yield: 3.0%
> Share Price: $37.05
> Year Range: $35.58 to $43.43
Coca-Cola Co. (KO) has been a long-time position for Buffett and Berkshire Hathaway. What has not been covered much is that Coca-Cola is supposed to be a defensive stock for the most part, yet shares have performed horribly since peaking in May and June of this year. It seems as if the anti-sugar movement is making this dividend higher than it would be had the price not dropped. With a market cap of $164 billion, this Dow Jones Industrial Average component has not been doing its part in the bull market. Still, Coca-Cola manages to raise its dividend each year. The stock trades at about 17 times earnings, it pays out about 49% of normalized earnings as dividends and its $44.53 consensus price target implies upside of just over 20%.
3. General Electric
> Buffett's Stake: 588,900 shares, or only $14 million
> Dividend Yield: 3.2%
> Share Price: $23.94
> Year Range: $19.87 to $24.95
General Electric Co. (GE) is maintained as a stake in the Berkshire Hathaway holdings, but that stake has dwindled to a very low state since Buffett took the larger preferred stake during the recession and later sold it. GE is the king of dividends among the conglomerates, and its market cap is the largest of all conglomerates at $244 billion. Perhaps Buffett feels as though owning GE is like buying a rival or a mirror of Berkshire Hathaway. GE is back to raising its dividends, and it has committed to raising dividends at the same rate as its earnings growth. GE trades at 14.5 times earnings, and its pays out about 46% of normalized income as dividends. The consensus price target of $26.43 implies upside of just over 10%.
2. Procter & Gamble
> Buffett's Stake: 52.8 million shares, or $3.99 billion
> Dividend Yield: 3.2%
> Share Price: $75.65
> Year Range: $65.83 to $82.54
Procter & Gamble Co. (PG) is a very large Berkshire Hathaway holding that dates back to when Buffett owned so much of Gillette. What is not discussed very much is that Berkshire Hathaway used to own more than 96 million shares and has lowered the stake here. P&G is still under an investor activism cloud, and it is not even the highest yield among the defensive sector of consumer products. It trades at about 17 times earnings, and it pays out about 56% of its normalized earnings and keeps raising its dividend through time. The consensus price target of $85.53 implies upside of 13% for P&G shares.
> Buffett's Stake: 24.1 million shares, or $1.7 billion
> Dividend Yield: 3.9%
> Share Price: $70.88
> Year Range: $53.95 to $71.18
ConocoPhillips (COP) has been Buffett's oil pick for longer than we might have expected. This was also one of our recent safest high-yield dividends of the S&P 500 for investors. At 3.9%, its yield is higher than most of the major oil and gas peers, and its $86.7 billion market cap leaves plenty of room for Buffett to remain a large and significant shareholder if he so chooses. ConocoPhillips trades at only about 12 times earnings, and it pays out about 47% of its normalized income as dividends. Unfortunately, the consensus price target of $71.12 implies an expected upside of not even 1%, so new investors may want to be patient here or hope for a pullback.
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