This Little-Known Buffett Portfolio Invested $24.7 Billion in These 3 Dividend Aristocrats
Warren Buffett loves dividends. And this year Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) will collect $5.7 billion in dividend checks, half of which will come from just three companies. But only a handful of those stocks have a long enough track record of raising their payout for 25 years or more. That’s a feat that would qualify them as a Dividend Aristocrat.
What many investors don’t know is Buffett has a second, smaller “secret portfolio” and it’s chock full of dividend royalty. New England Asset Management (NEAM) is a small subsidiary of Berkshire Hathaway that provides investment management services tailored to insurance companies. It has $68.5 billion in assets under management.
Founded in 1984, NEAM was acquired in 1995 by General Re, a property & casualty and life & health reinsurance company. Berkshire Hathaway subsequently acquired General Re in 1998. While there is some overlap, Buffett’s investment managers use NEAM to invest in numerous stocks that never find their way into Berkshire’s $346 billion portfolio. Among them are over a dozen Dividend Aristocrats.
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NEAM’s biggest position is in the SPDR S&P 500 ETF Trust. It has a portfolio value of $113 billion or more than 16% of NEAM’s portfolio. Warren Buffett has invested $24.7 billion in the three Dividend Aristocrats that follow. They account for 39% of NEAM’s total portfolio value.
Chevron (CVX)
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It’s probably not too surprising Chevron (NYSE:CVX) is one of the top three holdings in NEAM’s portfolio. Before Buffett fell in love with Occidental Petroleum (NYSE:OXY), Chevron was one of his biggest oil and gas stocks. But make no mistake, Buffett is still enamored with the energy giant. He owns 123 million shares in Berkshire worth almost $18 billion, but he’s sold off a lot of Chevron stock.
Chevron intends to keep growing, even if it doesn’t assume a larger proportion of NEAM’s portfolio. In a sign of the times, the oil and gas company recently said it was buying Hess (NYSE:HES) for $53 billion in an all-stock deal. It follows Exxon Mobil‘s (NYSE:XOM) $63 billion deal for Pioneer Natural Resources (NYSE:PXD). It shows how much the industry still believes in the future of fossil fuels. There is a reason we don’t hear too much about “peak oil” anymore.
Chevron stock is down 20% in 2023. The market didn’t like its earnings report, and the Hess deal sent it lower still on dilution concerns. Yet it gives Chevron some important assets in Guyana that will pay off down the road.
At just 10 times earnings and 12x free cash flow (FCF), the oil and gas stock looks very attractive at these prices.
Sysco (SYY)
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Food distribution leader Sysco (NYSE:SYY) is one of those stocks Buffett hasn’t bothered buying for Berkshire Hathaway, but he’s been picking up shares for NEAM. Last quarter, he bought 15,100 shares raising its portfolio value from $7.2 billion to $8.1 billion. He now owns over 109,000 shares. It’s another beaten-down dividend stock worth owning.
Sysco is the leader in a highly fragmented industry. It commands a 17% share of the market, operating 334 distribution facilities globally. It serves approximately 725,000 customer locations. U.S. Foods (NYSE:USFD) is in second place with an 11% share.
Although Sysco is down 12% this year, the food distribution giant bounced 8% off its October lows and appears on the road to recovery. Inflation and high interest rates impacted its business. Food and energy costs continue to weigh on performance, though. The Labor Dept. says food costs rose 0.2% in September while energy costs were 1.5% higher. Still, sales are growing and Sysco looks like it’s back on track.
Not only is Sysco a Dividend Aristocrat, but it’s also a Dividend King. That means it raised its payout for at least 50 years. Sysco has done so for 53 years.
Procter & Gamble (PG)
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Buffett’s biggest holding in NEAM behind the S&P 500 ETF is Procter & Gamble (NYSE:PG). Although he didn’t buy any shares of the consumer products giant last quarter, Buffett owns over 59,000 share for a value of $8.8 billion at current prices.
Procter & Gamble is a classic Warren Buffett stock. It’s a consumer facing business selling goods that consumers must buy again and again. It owns well-known brands like Crest, Charmin, Febreeze, Pampers, and Tide which are essential to everyday living. The company is simple to understand and pays a healthy dividend yielding 2.6% annually. It’s probably why Buffett refuses to let it go.
Yet he rarely bought the stock himself for Berkshire. He acquired most of his shares by owning Gillette, which P&G bought in 2005. He sold off most of P&G’s stock afterward, but he’s held onto the remnants of that earlier transaction for decades.
NEAM has been paring Procter & Gamble shares too. It started the year with over 62,000 shares, then sold a bunch in the first quarter and a few more in the second. As it didn’t follow suit in the third, perhaps the holdings are right-sized for now. But notably, the sales seem to occur when the stock is rising. Maybe more shares will be sold in the fourth quarter as P&G stock is on the upswing again.
Procter & Gamble looks pricey on the surface at 23 times earnings, but that’s actually as cheap as its been over the past decade. It has also paid a dividend every year since 1891, marking 132 years. That’s one of the longest streaks of any stock on the market.
On the date of publication, Rich Duprey held a LONG position in CVX, SYY, and PG stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.
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