While Berkshire Hathaway (BRK.B) 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 substantial income for the Oracle of Omaha.
In 2022, Berkshire Hathaway received $6.04 billion in dividend income, up from $5.06 billion in 2021 and $4.89 billion in 2020.
Dividend stocks can create impressive total returns (price plus dividends) for investors over the long term. "That's because regular dividend increases lift the yield on an investor's original cost basis. Stick around long enough, and the modest yield you received on your initial investment can hit double digits one day," writes Dan Burrows, senior investing writer at Kiplinger.com, in his story highlighting Wall Street's best dividend stocks.
And that's certainly been the case with Berkshire Hathaway. Over the last three years, BRK.B has averaged an annual total return of 21.8%, compared to the S&P 500 Index's 15.6% total return.
What Buffett has to say about dividend stocks
Here's what Buffett had to say about dividends in his 2020 letter to shareholders:
"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 generated more than $6 billion in dividend income over 2022, with 71% coming from just five stocks.
How we chose the best Buffett dividend stocks
Having written about investments since 2008, I chose to compile this list by including only stocks that yield as much or more than the S&P 500's current 1.6% yield. This is why, of all the best stocks to buy for dividends held in the Berkshire Hathaway equity portfolio, I did not include Apple (AAPL), which currently yields a low 0.5%.
All the names featured here have attractive dividend yields, solid fundamentals and have generated an impressive income stream for Berkshire Hathaway. With that in mind, here are seven of the best Warren Buffett dividend stocks.
Data is as of May 4. 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.
- Market value: $4.4 billion
- Dividend yield: 1.6%
- Percentage of Berkshire Hathaway portfolio: 0.1%
- Berkshire Hathaway ownership stake: 9.8%
Warren Buffett first acquired Louisiana-Pacific (LPX, $60.42) shares in Q3 2022. In the fourth quarter, Berkshire upped its stake in the building products producer by 21% to 7.0 million LPX shares. Always looking to the future, Buffett likely took a position in the Tennessee-based company to benefit from a revival of new home construction later in 2023 and into 2024.
In April, Louisiana-Pacific announced that it would acquire a mill In Wawa, Ontario, that will be converted into a SmartSide trim and siding operation.
"LP SmartSide Trim & Siding has experienced tremendous growth over the past few years, becoming one of the fastest-growing siding brands in the United States," said Jason Ringblom, executive vice president and general manager of siding at Louisiana-Pacific, in a press release.
The mill will have 400 million square feet of capacity, the largest single-line siding mill in the company. With the addition, LPX's total annual siding capacity will be 2.7 billion square feet. The transaction should close in May.
Siding solutions is already a strong segment for Louisiana-Pacific, generating $1.5 billion in revenue in fiscal 2022, 25% higher than the year earlier, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $339 million, 17% more than in 2021. Siding Solutions accounted for 38% of LPX's $3.9 billion in 2022 revenue, with Oriented Strand Board (OSB) generating 53% of sales and its South American business accounting for the rest.
Despite these solid fundamentals, Truist Securities analyst Michael Roxland has a Hold rating on LPX stock "given slower housing demand, which has translated into lower wood products demand."
Roxland adds that while Louisiana-Pacific "has generated strong return on invested capital the last few years and has reoriented its business towards growth and specialization, which could ultimately result in a multiple rerate over time … U.S. housing market weakness will continue to lead to lower demand for homes and wood products."
Should Buffett continue to add to Berkshire's position in the industrial stock, investors can be sure he believes the situation isn't nearly as dire as analysts believe.
And as for its place on this list of the best Buffett dividend stocks, LPX has increased its dividend for five consecutive years at a compound annual growth rate of more than 13%.
- Market value: $277.1 billion
- Dividend yield: 2.9%
- Percentage of Berkshire Hathaway portfolio: 7.4%
- Berkshire Hathaway ownership stake: 9.2%
Coca-Cola (KO, $63.72) 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.
The Dow stock is now Berkshire's fourth-largest holding, valued at $25.5 billion. That's a compound annual growth rate of 9%, which is slightly higher than the broad market.
However, that doesn't consider the company's hefty dividend, which currently arrives at an annualized payout of $1.84 per share. Based on Berkshire's 400 million shares, it gets $736 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 roughly two years solely from the current dividend payment.
It's a miracle of compounding in action.
In February, Coca-Cola hired Philippe Schaillee as the CEO of its Costa Coffee subsidiary. Schaillee joined the company from Groupe SEB, where he was executive vice president in charge of Products and Innovation. Groupe SEB makes cookware, small kitchen appliances, and professional coffee equipment. Its brands include Krups coffee makers.
Coca-Cola also continues to get more involved in alcoholic beverages.
In mid-April, Coca-Cola and Molson Coors Beverage (TAP) announced that their alcoholic beverage collaboration, which began in 2020 with Topo Chico Hard Seltzer, would introduce three 5% alcohol-by-volume flavors of Peace Hard Tea.
"Peace Hard Tea comes with a distinct point of view, amazing flavors and incredible branding to build something new and exciting in the alcohol aisle," Molson Coors reported in the blog post comments of Amanda Devore, Molson Coors' marketing director for innovation. "The hard tea category continues to grow double digits year over year, and we think there's a huge opportunity."
Bank of America
- Market value: $217.4 billion
- Dividend yield: 3.2%
- Percentage of Berkshire Hathaway portfolio: 8.8%
- Berkshire Hathaway ownership stake: 12.9%
Bank of America (BAC, $26.99) is Berkshire Hathaway's second-largest holding behind only Apple. Buffett first acquired BAC stock in Q3 2017. Berkshire is the bank's largest institutional shareholder with 1.03 billion shares, nearly 400 million shares more than Vanguard Group.
In Buffett's most recent appearance in the media, the 92-year-old CEO said that he unloaded many of the holding company's bank stocks because he didn't think they were near as solid investments as they once were.
As for Bank of America, he said this about the bank and its CEO:
"I like [CEO] Brian Moynihan enormously. And I just don't wanna, I don't wanna sell it," Buffett told CNBC's Becky Quick. "But I did sell banks that we'd owned for 25 or 30 years. And if they asked me why I did it, I told them – I just think the system isn't set up quite right in terms of connecting punishment to culprits on something that's important."
The question on the minds of many investors regarding banks is the unrealized losses from their bond portfolios. For example, Bank of America's losses totaled $99 billion at the end of March, down from $109 billion at the end of December.
However, as Chief Financial Officer (CFO) Alastair Borthwick stated recently, the strength of the bank's deposits means that as time passes, its profits will increase; at the same time, the unrealized losses will fall, and the duration of the bonds to maturity will shorten.
"One of the reasons that we spend as much time laying out the deposit franchise is because in a rising-rate environment, you'd expect obviously that bond markets are going to turn negative. And, at the same time, you and we have been expecting, as rates go up, the NII [net interest income] would rise, because the deposits are so much more valuable in that environment," Borthwick said in the company's Q1 2023 earnings call.
Analysts like BAC stock, as evidenced by a consensus Buy rating among the 26 analysts following it that are tracked by S&P Global Market Intelligence. Plus, the average price target of $36.13 represents implied upside of nearly 23% to current levels.
- Market value: $29.2 billion
- Dividend yield: 3.5%
- Percentage of Berkshire Hathaway portfolio: 0.9%
- Berkshire Hathaway ownership stake: 10.6%
Berkshire started buying HP (HPQ, $29.40) in the first quarter of 2022. Then, in April 2022, Berkshire revealed its ownership stake of 121 million shares in HP. The share price rose 15% on the news, giving the holding company a quick unrealized gain on its investment.
However, based on the average estimated price paid for the HPQ shares, Buffett is currently losing money on his position. Berkshire is HP's largest shareholder, owning about 11 million more shares of HPQ than Vanguard Group.
In addition to its attractive valuation – HPQ is trading at just 8.8 times forward earnings – the company is known for rewarding its shareholders. HP increased its quarterly dividend in November by 5%, which followed a 29% hike in October 2021.
The dividend yield is healthy at 3.5%, more than double the dividend yield for the S&P 500. In addition to paying out $1.04 billion in dividends in fiscal 2022 (October year-end), 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 had plenty to continue paying the healthy dividend – and keep HP on this list of the best Warren Buffett dividend stocks. Based on Berkshire's 104 million HPQ shares owned, it will receive nearly $110 million in dividends from HP over the next year.
Buffett's more than fine getting paid to wait for the stock to come around.
Meanwhile, Argus Research analyst Jim Kelleher has a Buy rating and a $48 price target on the stock, 63% higher than where it's currently trading.
The possibility of a recession and "a corresponding dip in PC and printer sales" is a "main risk" for HPQ, but Kelleher believes the company "has the financial strength, market leadership, and growth characteristics to weather this storm and emerge a stronger player."
- Market value: $302.0 billion
- Dividend yield: 3.8%
- Percentage of Berkshire Hathaway portfolio: 8.4%
- Berkshire Hathaway ownership stake: 8.8%
In mid-November, it hit an all-time high of $189.68 before dropping back slightly, closing out the year up 53%, not including dividends. That's considerably higher than the S&P 500, which finished down 23.9% in 2022. But while the stock is down nearly 7% in 2023, this just gives investors the chance to buy this top blue chip stock at a discount.
Chevron CFO Pierre Breber told Fortune's Sheryl Estrada last October that the company's dividend is its "first financial priority." In January, it announced it would increase its quarterly dividend by 6% to $1.51 a share. The annual rate of $6.04 yields 3.6%, more than double the S&P 500's yield.
CVX has grown the payout for 36 consecutive years, making it one of the best Warren Buffett dividend stocks. In addition, the company announced a new $75 billion stock buyback program that took effect on April 1.
The icing on the cake: Chevron remains one of the best value stocks, trading at just 11.5 times forward earnings, well below its five-year average of 37.8.
That's very reasonable.
- Market value: $48.8 billion
- Dividend yield: 4.0%
- Percentage of Berkshire Hathaway portfolio: 3.7%
- Berkshire Hathaway ownership stake: 26.5%
Consumer staples stocks in the S&P 500 have underperformed the broader index by roughly 460 basis points (a basis point = 0.01%) so far in 2023. However, despite the underperformance, consumer staples stocks are the fourth best-performing sector for the year-to-date.
Kraft Heinz (KHC, $40.84), whose products include Kraft mac & cheese and Heinz ketchup, is flat for the year-to-date and down about 1% over the past year.
Berkshire Hathaway shareholders can be secure knowing that KHC will remain one of the best Warren Buffett dividend stocks. The company continues to pay a quarterly dividend of 40 cents a share. The $1.60 per-share annual payment yields a high 4.0%.
In 2022, Kraft Heinz paid out $1.96 billion in dividends. Berkshire will receive $521 million in dividends in 2023. It has not repurchased any of its shares in recent years, opting to pay down its debt instead.
"KHC has used excess cash and proceeds from divestitures to reduce leverage," says Argus Research analyst Chris Graja. "In the 3Q20 call, the company reiterated its objective to reduce debt while maintaining the current dividend and said that it expected to reach four-times by year-end."
"The company did reach its goal, reducing net debt to 3.7-times EBITDA at the end of 2020 and 3.1-times at the end of 2Q21 from 4.4-times at the end of 2019. Debt was 3.55-times adjusted EBITDA at the end of 2021 and 3.3-times at the end of 2022."
Still, Graja currently has a Hold rating and a $37 price target on KHC stock, slightly below where it's currently trading. "We see raising volume as essential to the company’s success, and necessary for any potential upgrade of the stock," Graja says.
Overall, the bulk of covering analysts are upbeat toward KHC, as evidenced by a consensus Buy recommendation at S&P Global Market Intelligence. Plus, the target price of $45.84 represents implied upside of 12% over the next 12 months or so.
- Market value: $10.8 billion
- Dividend yield: 4.2%
- Percentage of Berkshire Hathaway portfolio: 0.5%
- Berkshire Hathaway ownership stake: 15.3%
Paramount Global (PARA, $16.40) finished 2022 with a bang, adding nearly 10 million subscribers to its Paramount+ streaming platform. Many signed up to see Top Gun: Maverick, the long-awaited follow-up to the 1986 fighter combat flick.
So, not only did Paramount Global generate colossal box office from the film in theaters – Tom Cruise's movie generated $1.48 billion globally, beating out Avatar: The Way of Water ($1.39 billion) for the top grossing film of 2022 – but it also helped lift total subscribers for Paramount+ to 56 million, and more than 77 million overall (Pluto TV, Showtime OTT, etc.).
As any video streaming executive will tell you, scaling up this type of operation isn't cheap. For Paramount, streaming in the first quarter of 2023 saw a 39% year-over-year revenue increase, to $1.5 billion, with an adjusted operating income before depreciation and amortization (OIBDA) loss of $511 million, 12% more than the loss incurred in Q1 2022. Analysts predict its streaming losses in 2023 will hit $2.1 billion, before falling to $1.5 billion in 2024.
This higher cost of streaming prompted Paramount Global to slash its quarterly dividend in May, to 5 cents per share from 24 cents per share. This, the company says, will result in roughly $500 million in annualized cash savings.
"[T]he changes we made for our capital allocation policy are totally appropriate for a company that has both the compelling growth opportunity we see today, but operating in the current macro environment, there is no debate that our streaming momentum has obviously continued to build," said Naveen Chopra, chief financial officer at Paramount Global, in the company's Q1 earnings call. "But the reality is the macro environment has not gotten less complex. So, it's prudent really for all companies to optimize their balance sheet for flexibility."
In late March, BofA Securities analysts upgraded the communication services stock from Neutral (Hold) to Buy while raising their price target by $8 to $32, roughly double its current share price.
"It is our view that PARA has a unique collection of assets that would generate significant buyer interest if ever put up for sale – either in pieces or whole," the analysts wrote in a research report. "Recent press reports (Reuters and others) suggest there is interest from at least four qualified buyers for BET."
While Paramount Global isn't a big part of the Berkshire portfolio, it is one of 13 companies with over 10% ownership stake.
We'll keep an eye on Paramount Global. While it had paid stakeholders like Berkshire Hathaway handsomely to wait for a potential buyout, the recent payout cut puts its place on this list of the best Warren Buffett dividend stocks at risk.
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.
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