Warren Buffett’s Top 10 High-Dividend-Paying Stocks of All Time
1,598,284%: That’s how much Warren Buffett’s Berkshire Hathaway Inc.’s (NYSE:BRK.B) portfolio returned from 1965 to 2015. And if you think this kind of return can only be achieved from trading high-momentum tech stocks, you’d be wrong. As you look into Berkshire Hathaway’s portfolio, you won’t see hyped up Internet names; rather, his portfolio is filled with solid dividend payers.
Buffett is a big fan of dividends, but if you invest in Berkshire today, don’t expect a quarterly payout. And there is a pretty good reason for it. Why pay out earnings to shareholders when the “Oracle of Omaha” can put them to much better use?
Still, if the goal of your investment portfolio is to generate steady income for years to come, learning from the legendary investor would be a great idea. With that in mind, let’s take a look at Buffett’s top 10 high-dividend-paying stocks of all time.
#10. American Express Company
Mr. Market hasn’t been very nice to American Express Company (NYSE:AXP) in the past year or so. However, Buffett—a student of Benjamin Graham, who coined the term “Mr. Market”—still likes this credit card company.
By the end of the second quarter, Berkshire owned 151.6 million shares of American Express, unchanged from the end of the first quarter. The stake was worth more than $9.2 billion at the end of June and was the fifth-largest holding of Buffett’s Berkshire Hathaway portfolio. (Source: “Form 13F Information Table,” U.S. Securities and Exchange Commission, August 15, 2016.)
The concern about American Express over the past a year and a half was that it lost the exclusive deal with Costco Wholesale Corporation (NASDAQ:COST), but things haven’t been that bad lately. American Express’ second-quarter net income came in at $2.0 billion, up 37% year-over-year, thanks to a gain of $1.1 billion from the sale of its Costco U.S. co-brand card portfolio. Excluding foreign exchange fluctuations, adjusted revenue increased one percent. (Source: “American Express Reports Second Quarter EPS of $2.10; Quarterly Results Include Gain from Loan Portfolio Sale, Restructuring Charge and Elevated Spending on Growth Initiatives; Business Performance Reflects Higher Card Member Spending, Lending Momentum, Strong Credit Quality and Cost Controls,” American Express Company, July 20, 2016.)
Note that American Express plans to boost its quarterly dividend rate to $0.32 per share, starting with the third-quarter dividend declaration. That would give the company a 1.96% annual dividend yield. (Source: “American Express Plans to Increase Quarterly Dividend by 10 Percent and Buy Back Up To $3.3 Billion of Common Shares Through Q2 2017,” American Express Company, June 29, 2016.)
#9. Apple Inc.
It was a big surprise when Berkshire Hathaway disclosed in May that it had scooped up 9.81 million shares of Apple Inc. (NASDAQ:AAPL) in the first quarter. At that time, Berkshire’s stake in Apple was worth approximately $1.07 billion. (Source: “Form 13F,” U.S. Securities and Exchange Commission, May 16, 2016.)
And that was just the start. In the second quarter, Berkshire increased its stake in Apple by 5.42 million shares, or 55%. The company now has a total of 15.2 million shares of Apple stock, worth $1.46 billion at the end of June.
The decision by Buffett’s fund to acquire a sizable stake in Apple likely had something to do with the company’s valuation and dividends. The first two quarters of 2016 weren’t exactly Apple’s best. But because of the shift in market sentiment towards the “iPhone” maker, valuations have come to a point that makes AAPL stock quite attractive.
Even after a decent climb in the past three months, Apple stock still screams value. Trading at $105.67 per share on Tuesday, the company has a price-to-earnings multiple of just 12.34x. Moreover, Apple now pays quarterly dividends with a decent annual yield of 2.16%.
Sure, 2.16% means Apple is not really one of Buffett’s highest-yielding holdings. But note that Apple’s payout ratio is quite low, and it has a huge pile of cash. If Apple decides to boost its payout ratio down the road, AAPL stock would get renewed interest from dividend investors.
#8. U.S. Bancorp
U.S. Bancorp (NYSE:USB) is the parent company of the U.S. Bank National Association, the fifth-largest commercial bank in the U.S. The bank provides banking, investment, mortgage, trust, and payment services products to consumers, businesses, and institutions. The company operates 3,122 banking offices in 25 states and has $438.0 billion in assets.
Due to the appreciation in U.S. Bancorp’s share price, the company has become the seventh-largest holding in Buffett’s Berkshire Hathaway portfolio. Berkshire owned over 85 million shares of the bank holding company by the end of the second quarter, worth approximately $3.43 billion.
Like its peers in the financial services industry, U.S. Bancorp pays quarterly dividends. It currently has an annual dividend yield of 2.31%.
#7. Kraft Heinz Co.
Buffett once said that he eats “like a six-year-old.” And coincidentally (or not), he invested quite a bit in Kraft Heinz Co. (NASDAQ:KHC), a food company that suits his taste.
In fact, Kraft Heinz is the largest holding in Buffett’s Berkshire Hathaway portfolio. By the end of June, Berkshire owned 325.6 million shares of the food company, worth approximately $28.8 billion at the time.
The company was formed by the merger of Kraft Foods and Heinz. The deal was backed by Berkshire Hathaway and 3G Capital. The merged company has a large portfolio of popular brands, including Kraft, Heinz, ABC, Classico, Jell-O, Kool-Aid, and Philadelphia.
Kraft Heinz is also a solid dividend payer. The company recently announced a four-percent increase in its quarterly dividend rate. With a quarterly payout of $0.60 per share, Kraft Heinz has an annual dividend yield of 2.73%.
#6. Wal-Mart Stores, Inc.
Buffett reduced his fund’s position in Wal-Mart Stores, Inc. (NYSE:WMT) in the second quarter of 2016. But with over 40 million shares of the retail giant, Berkshire still has a sizable stake in Wal-Mart, worth approximately $2.9 billion at the quarter’s end.
Brick-and-mortar stores are facing a serious threat from the ecommerce industry. Wal-Mart, despite being a retail behemoth, is under that threat as well.
But rather than standing still, the company is actively building its own online segment. In the second quarter of its fiscal 2017, Wal-Mart’s ecommerce sales grew 11.8% year-over-year on a constant currency basis. Gross merchandise volume, or GMV, surged 13% year-over-year. (Source: “Walmart Reports Q2 FY17 EPS of $1.21, Adjusted EPS of $1.07, Raises Full Year Adjusted Guidance Range to $4.15 to $4.35,” Wal-Mart Stores, Inc., August 16, 2016.)
Wal-Mart is also going to strengthen its ecommerce segment through the acquisition of Jet.com, Inc. The companies announced this deal earlier this month. Wal-Mart will buy Jet for $3.0 billion in cash and $300.0 million worth of Wal-Mart shares. (Source: “Walmart Agrees to Acquire Jet.com, One of the Fastest Growing e-Commerce Companies in the U.S.,” Wal-Mart Stores, Inc., August 8, 2016.)
Trading at $71.34 on Tuesday, Wal-Mart stock has an annual dividend yield of 2.8%.
#5. Wells Fargo & Company
Wells Fargo & Company (NYSE:WFC) is the second-largest holding at Berkshire Hathaway. By June 30, the Oracle of Omaha owned nearly 480 million shares of the bank holding company; the stake was worth approximately $22.7 billion at the time.
Bank stocks, including Wells Fargo, have climbed quite a bit in the past five years. More recently, however, sentiment hasn’t been that great. In the past 12 months, WFC stock is down 5.6%.
Business appears to be solid. In the second quarter of 2016, total average loans increased nine percent year-over-year to $950.8 billion, while total average deposits grew four percent to $1.2 trillion. Net interest income for the quarter increased $66.0 million sequentially to $11.7 billion. (Source: “Wells Fargo Reports $5.6 Billion In Quarterly Net Income; Diluted EPS of $1.01; Revenue Up Four Percent from Prior Year,” Wells Fargo & Company, July 15, 2016.)
Note that in June, Berkshire Hathaway applied to the Federal Reserve for approval to add more Wells Fargo shares after reaching the 10% threshold. (Source: “Warren Buffett has asked the Fed if he can own more than 10% of Wells Fargo,” Business Insider, July 1, 2016.)
Wells Fargo stock currently pays a quarterly dividend of $0.38 per share, translating to an annual yield of 3.02%.
#4. Phillips 66
Many companies in the energy sector are still deep in the doldrums, but that did not prevent the Oracle of Omaha from buying more shares of Phillips 66 (NYSE:PSX).
So far into 2016, Buffett’s Berkshire Hathaway spent approximately $1.39 billion buying an additional 18 million shares of Phillips 66. This brings Berkshire’s total stake in the energy company to 78.8 million shares, worth approximately $6.3 billion.
As is the case with any company in the energy sector, the hope for Phillips 66 is that oil prices would recover, so business will improve and margins would expand.
Phillips 66 is already showing signs of improvement. In the second quarter of 2016, the company generated $499.0 million of adjusted earnings, an increase of $139.0 million from the first quarter. The Refining segment achieved a record 100% utilization rate, while the Chemicals segment expanded its margins. (Source: “Phillips 66 Reports Second-Quarter Earnings of $496 Million or $0.93 Per Share,” Phillips 66, July 29, 2016.)
The company pays a quarterly dividend of $0.63 per share. With the subdued price level of PSX stock, Phillips 66 has an attractive dividend yield of 3.18%.
#3. The Coca-Cola Company
The Coca-Cola Company (NYSE:KO) is a longtime favorite of the Oracle of Omaha. Buffett recently said that he consumes about 700 calories of Coke a day, saying, “I’m about one-quarter Coca-Cola.” (Source: “Buffett defends Berkshire’s big Coke stake,” CNBC, May 2, 2016.)
His fondness for the sugary beverage is reflected in his fund’s holdings. By the end of the second quarter, Berkshire Hathaway owned a whopping 400 million shares of Coca-Cola, worth around $18.1 billion at the time.
Dividend-wise, KO stock looks quite impressive. The company has been paying quarterly dividends for more than four decades. Coca-Cola currently has a quarterly dividend rate of $0.35 per share, which translates to an annual dividend yield of 3.23%.
The international macroeconomic environment has hurt many multinational companies, including Coca-Cola. In the most recent earnings report, the company had to cut its full-year guidance. Coke now expects organic revenue to grow three percent in 2016, down from its previous guidance of between four and five percent. (Source: “The Coca-Cola Company Reports Second Quarter 2016 Results,” The Coca-Cola Company, July 27, 2016.)
One concern for the Atlanta-based beverage giant is that people might shift to a more healthy diet and ditch sugary drinks like Coca-Cola. In response, Buffett said, “I elect to get my 2,600 or 2,700 calories a day from things that make me feel good when I eat them. That’s my sole test.” Moreover, he said that he had seen no evidence that switching to a “water and broccoli” diet would help him live to be 100 years old.
#2. International Business Machines Corp.
Buffett isn’t exactly known as an investor in the technology sector, but he does make a few exceptions. One of them is International Business Machines Corp. (NYSE:IBM).
By the end of June, Buffett’s Berkshire Hathaway owned more than 81 million shares of IBM, worth approximately $12.3 billion at the time.
One of the things that makes IBM stand out is its dividends. The company has a quarterly dividend rate of $1.40 per share, which translates to an annual dividend yield of 3.51%. In today’s market conditions, it is one of the highest-yielding holdings of Berkshire. Moreover, IBM has been raising its dividends for 21 consecutive years.
The company’s business, on the other hand, has been less than stellar. Revenue has been declining for 17 straight quarters on a year-over-year basis; the bottom line deteriorated as well. In the second quarter of 2016, IBM’s earnings per share came in at $2.61, significantly lower than the $3.50 per share earned in the year-ago period. (Source: “IBM Reports 2016 Second-Quarter Earnings,” International Business Machines Corp, July 18, 2016.)
IBM is trying to turn things around by focusing on the cloud, analytics, and engagement—its so-called strategic imperatives. In the second quarter, cloud revenue (including public, private, and hybrid cloud) increased 30% year-over-year, while revenue from analytics increased five percent.
The company returned $1.3 billion in dividends and $0.8 billion in share buybacks to shareholders in the most recent quarter. As of the end of June, IBM has $3.9 billion remaining in its current share repurchase authorization.
#1. General Motors Company
General Motors Company (NYSE:GM) is the highest-yielding holding in Buffett’s Berkshire Hathaway portfolio. With a quarterly dividend rate of $0.38, General Motors has an annual dividend yield of 4.8%.
While the downfall of the U.S. automotive sector was not that long ago, today’s GM is a very different company. In the second quarter of 2016, GM’s revenue grew 11% year-over-year, reaching a record $42.4 billion. Net income came in at $2.9 billion, a whopping 157% increase from the second quarter of 2015. (Source: “GM Reports Second Quarter Net Income of $2.9 Billion, Up 157 Percent,” General Motors Company, July 21, 2016.)
Vehicle sales picked up as well. General Motors sold 236,235 vehicles to retail customers in July, a five percent increase year-over-year. GM’s brands—Chevrolet, GMC, Buick, and Cadillac—collectively had their best July retail sales performance since 2007. At the same time, GM’s retail market share rose one percentage point to 17.9%, its highest level since December 2011. (Source: “GM’s Gains One Percentage Point of Retail Share in July, Driving Share to Highest Level Since December 2011,” General Motors Company, August 2, 2016.)
General Motors stock also has quite low valuations. At $31.67 a share, GM stock is trading at just over four times its earnings.
With a booming business, attractive dividends, and a great price, it shouldn’t be a surprise that GM stock has a spot in Buffett’s investment portfolio. By the end of the second quarter, Berkshire owned 50 million shares of GM stock, with a value of $1.4 billion.