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All Contents © 2019The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| September 17, 2018
Berkshire Hathaway (BRK.B) famously doesn't pay dividends – it has better ways to use its cash – but Chairman and CEO Warren Buffett sure loves collecting them.
The great majority of the stocks in Berkshire Hathaway's portfolio are dividend payers. And, indeed, all of Berkshire's top 10 holdings – from Apple (AAPL) to Moody's Corporation (MCO) to Southwest Airlines (LUV) – pay dividends.
Yields on these names are another matter. Buffett doesn't reach for yield any more than he chases performance. Apple, his favorite stock by far, sports of dividend yield of just 1.3% these days.
It's not that Buffett is automatically allergic to above-average yields. (The dividend yield on the S&P 500 currently stands at 1.81%, according to Birinyi Associates.) Heck, the yields on Berkshires highest-yielding dividend stocks are anywhere from more-than-respectable to generous. There just aren't all that many big yielders.
After excluding names that are now negligible parts of Berkshire's portfolio – for example, Verizon (VZ) or Sanofi (SNY) – these are the five Warren Buffett stocks with the highest dividend yields.
Data is as of Sept. 13, 2018, unless otherwise noted. Stocks are listed by dividend yield, from lowest to highest. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Analysts’ ratings provided by Zacks Investment Research. Berkshire’s stake in each company is based on the latest 13-F filing with the Securities and Exchange Commission and represents the number of shares held as of June 30, 2018.
Market value: $264.9 billion
Dividend yield: 3.0%
Berkshire’s stake: 452 million shares
Analysts’ opinion: 9 strong buy, 1 buy, 10 hold, 0 sell, 3 strong sell
Warren Buffett has stood by Wells Fargo & Co. (WFC, $55.00) despite a seemingly never-ending stream of bad press.
To be fair, the bank has remained popular with hedge funds, active mutual funds, and plenty of analysts ever since its 2016 phony accounts scandal and a series of subsequent black eyes.
Buffett typically doesn't comment on Berkshire's investments and Wells Fargo has been no exception. But he clearly loves the name. With a market value of almost $25 million, WFC is Berkshire's second-largest holding after Apple. And Berkshire's 9.89% stake in WFC make it the bank's largest shareholder.
Market value: $194.9 billion
Dividend yield: 3.4%
Berkshire’s stake: 400 million shares
Analysts’ opinion: 6 strong buy, 0 buy, 7 hold, 0 sell, 0 strong sell
Coca-Cola (KO, $45.83) is an income investor’s dream. The company has paid a quarterly dividend since 1920, and it has hiked that dividend annually for 55 years.
Buffett, an unabashed fan of Cherry Coke, started investing in Coca-Cola soon after the stock market crash of 1987. In his 1988 letter to Berkshire shareholders, Buffett said he expected to hold on to the stock "for a long time." Three decades later he’s proven true to his word.
With the U.S. market for carbonated beverages on the decline for more than a decade, according to market research, Coca-Cola has responded by adding bottled water, fruit juices, teas and other drinks to its product lineup. Analysts applauded its August 2018 acquisition of Costa Coffee.
The long-time Dow stock is a favorite of hedge funds too.
Market value: $5.9 billion
Dividend yield: 4.3%
Berkshire’s stake: 18.6 million shares
Analysts’ opinion: 4 strong buy, 1 buy, 5 hold, 0 sell, 0 strong sell
It was notable when Buffett revealed Berkshire’s position in Store Capital (STOR, $28.91) in the summer of 2017. Prior to Store, Buffett had never shown much affection for real estate investment trusts (REITs), which are a way to invest in real estate without owning the actual assets.
In Store’s case, it invests in single-tenant properties including chain restaurants, supermarkets, drugstores and other retail, service and distribution facilities. That’s to say, it’s a bet on brick-and-mortar retail, which is thought to be in permanent decline.
Store figures it can sidestep the threat of Amazon.com (AMZN) and e-commerce in general by focusing on “internet-resistant” retailers, such as furniture stores, hobby and craft centers, and hunting, fishing and camping shops. Apparently, Buffett thinks they can pull off the strategy.
Market value: $48.3 billion
Berkshire’s stake: 51.4 million shares
Analysts’ opinion: 9 strong buy, 1 buy, 4 hold, 0 sell, 1 strong sell
Berkshire Hathaway first bought shares in General Motors (GM, $34.25) in 2012. The original stake of just 10 million shares, worth only $222 million at the time, was so small that observers assumed it was made by one of Buffett's lieutenants, Todd Combs or Ted Weschler, not by the Oracle himself.
Cut to today and Berkshire's stake in the U.S. automaker is much more substantial. Indeed, after adding an additional 1.4 million shares in the second quarter ended June 30, Berkshire Hathaway now holds 51.4 million GM shares worth about $48.3 billion.
General Motors' relatively high dividend yield is only part of what makes it attractive to a value investor such as Buffett. The stock also looks like a bargain relative to the company's earnings potential. GM shares trade at just 5.7 times expected earnings, according to data from Thomson Reuters. And yet analysts forecast the automaker to generate average annual earnings growth of more than 10% for the next five years.
GM also happens to be one of the best stocks of all time.
Market value: $72.5 billion
Dividend yield: 4.4%
Berkshire’s stake: 325.6 million shares
Warren Buffett was one of the driving forces behind the 2015 merger of packaged-food giant Kraft and ketchup purveyor Heinz to create Kraft Heinz (KHC, $59.49). It's now Berkshire's fourth largest stock investment with a current market value of $19.4 billion.
Berkshire Hathaway owns 26.7% of Kraft Heinz, making it the food company's largest shareholder, according to data from S&P Global Market Intelligence. Private investment firm 3G Capital owns another 22.2%. Berkshire and 3G Capital originally teamed up in 2013 to purchase H. J. Heinz.
Consumer staples companies such as Kraft Heinz tend to hold up better when the economy or stock market turns south. The generous dividend only bolsters KHC's defensive aspects. For a long-term investor such as Buffett, Kraft Heinz provides a steady stream of income and ballast in volatile and/or down markets.
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