Warren Buffett’s Portfolio: 5 Largest Stocks That Keep Buffett’s Net Worth in the Billions
Largest Stocks in Warren Buffett’s Portfolio
We all know that Warren Buffett is one of the world’s wealthiest individuals. This has all been achieved by investing in public stocks on the markets.
Buffett makes all his investments through his holding company, Berkshire Hathaway Inc. (NYSE:BRK.A). His investment philosophy is to own a good quality company with revenue that is steady and predictable. Also, Buffett ensures that the management team in place are great operators, who are always looking out for the investors’ interest. Lastly, the time period of holding an investment is forever.
With this said, you may be wondering what influences Warren Buffett’s net worth. What are the largest stocks in Warren Buffett’s portfolio? All the stocks mentioned in this article pay out a dividend to investors, and as such, I refer to them as Warren Buffett dividend stocks.
5 Biggest Stocks in Buffett’s Portfolio
|Sr.No||Company Name||Stock Ticker||Number of Shares Owned by Warren Buffett|
|1||Kraft Heinz Co||KHC||325,634,818|
|2||Wells Fargo & Co||WFC||479,704,270|
|4||The Coca-Cola Co||KO||400,000,000|
|5||American Express Company||AXP||151,610,700|
#1 Kraft Heinz Co
Kraft Heinz Co (NASDAQ:KHC) is one of North America’s largest consumer-packaged food and beverage companies based on revenue, which is north of $26.0 billion. KHC stock operates in more than 40 countries around the world and sells products in nearly 200 countries.
The company was formed after the merger of H. J. Heinz Company and Kraft Foods Inc in July of 2015. The merger between Kraft and Heinz occurred because of the decisionmaking of Warren Buffett and his partnership with 3G Capital. In 2013, Buffett’s Berkshire Hathaway and 3G Capital acquired H.J. Heinz. They looked to make the company larger and more efficient, and then inked a deal with Kraft through a merger to form Kraft Heinz Co. Today, KHM stock is the largest position within the Berkshire Hathaway portfolio.
Why is Warren Buffett so bullish on KHC stock?
The first reason is because of the steadiness and stickiness of revenue that is generated by the business. Food and beverages are an essential part of everyday life for all consumers. Regardless of how the economy is performing, consumers will continue to purchase food and beverages from Kraft Heinz. Another reason is because of the powerful brands that are owned within the company, which include “Oscar Mayer,” “Kool-Aid,” “Jell-O,” “Planters,” and “Maxwell House.”
Also, KHC revenue is protected from inflation, which helps the top and bottom line. The margins that are witnessed from the business remain steady and strong. With 3G Capital and Berkshire Hathaway focused on creating more efficiency within the business, there is the possibility of seeing margin expansion. This would be done by reducing cost within the business, such as reduction in employee headcount and the number of buildings rented around the world.
The last reason why Buffett loves KHC stock is because of the money given back as an investor. There is a growing dividend that is in place; which is reviewed annually, every August. Once the cost-efficiency targets are met, then there is the possibility of seeing higher dividend hikes in the coming years. I also believe that there is a high probability of seeing a share buyback in the coming years to reward shareholders even further.
#2 Wells Fargo & Co
Wells Fargo & Co (NYSE:WFC) is a diversified financial services company with operations around the globe. WFC offers a range of financial services in areas that include wholesale, mortgage banking, consumer finance, equipment leasing, investment banking, and brokerage services. Wells Fargo was founded in 1852 and today is one of the largest financial institutions based on assets within the U.S.
Buffett is a big believer in owning companies that are part of the core of the economy; this is the reason for the large ownership stake in WFC stock. This position has been held onto with the mentality of buying and holding onto the shares forever. WFC stock has been within the portfolio for over 25 years and has grown to the No. 2 position based on market value within the Berkshire Hathaway portfolio.
Why is there such a love affair with WFC stock?
The core business is mainly everyday banking, which generates recurring revenue for the business, and the business model is quite easy to understand. There will be consumers coming to the bank to deposit their funds to earn interest on their savings. Then there will be another group of consumers seeking a loan, which would result in paying interest to the bank. Now, the interest rate on the loan will be higher than what the saver earns; what remains is the revenue. This simple business model has not changed from when the initial investment was made in the stock, which is why Buffett still holds onto the stock.
Over the years, there have been new business investments made, which has further diversified Buffett’s initial investment, such the internet brokerage business. With almost everyone having access to the internet, the decision of offering an online platform to consumers was a no-brainer. Also, this strengthens the relationship with the end consumer, which then has the possibility to lead to more products and services being offered.
The management team has not only focused on growing the business and remaining relevant, but has also given capital to shareholders. This, over the years, has been in the form of dividend payments, which are given quarterly to shareholders. There have also been shares repurchased, which is a tax-efficient return to shareholders. Since Buffett is a long-term investor, there is no tax liability until the shares are sold off; which gives Buffett full control.
#3 Apple Inc.
Apple Inc. (NASDAQ:AAPL) represents one of Berkshire Hathaway’s largest asset investments. The initial position was acquired in early 2016; at the time, it represented about 9.81 million shares, a $1.09-billion investment. Buffett continued to purchase more shares, and today it represents the third-largest position within Berkshire Hathaway.
At first, I know what you’re thinking—why would Buffett own a cyclical technology company?
When digging deeper into the financials of the company, Apple’s investment makes sense from Buffett’s perspective. The sales that are earned are growing year in and year out, and are up 38% over the period of 2012 to 2016. The margins that are earned are very healthy, which results in a ton of return of capital to investors. (Source: “Apple Inc.,” MarketWatch, last accessed August 11, 2017.)
In 2012, Apple declared a dividend to be paid out to investors on a quarterly basis. Also, this dividend has been growing at least once a year. The management team has also implanted a share buyback program. This gives Buffett a major benefit of owning a larger piece of the company without acquiring more shares. The reason is that because there are fewer outstanding shares, each share owned represents a larger percentage of the company. (Source: “Apple Expands Capital Return Program to $200 Billion,” Apple Inc., May 2, 2017.)
Another reason why Buffett is bullish on AAPL stock is because of its large cash war chest. By the second quarter of 2017, there was more then $250.0 billion in Apple’s bank account. This represents a little more than 30% of its market share sitting in cash. This cash could be used for more capital returned to shareholders or an acquisition. Depending on the acquisition, it could increase its market share if there is overlap with the current business operations.
Another possibility is making a large acquisition of another company, which would contribute to the revenue of Apple right away. I believe that since there is a heavy focus on managing a well-run and shareholder-friendly company, the final decision will be in the interest of investors. (Source: “Apple’s Cash Hoard Swells to Record $256.8 Billion,” CNBC, May 2, 2017.)
Therefore, when taking a look at AAPL stock, the assessment is not that it is a volatile company, but rather one that earns recurring revenue from operations.
#4 The Coca-Cola Co
The Coca-Cola Co (NYSE:KO) ranks as the fourth-largest position within Berkshire Hathaway and may also be one of Warren Buffett’s best investments. The total amount of capital poured into KO stock was $1.3 billion and today would reflect a value of more than $16.0 billion, which is a gain of more than 1,230%. Currently, Buffett’s ownership in the company represents slightly more than nine percent. (Source: “The Coca-Cola Company (KO),” Yahoo! Finance, last accessed August 10, 2017.)
KO stock represents one of the highest-paying dividend stocks in Berkshire’s portfolio. Currently, there are 400 million shares owned by Berkshire, which would amount to $140.0 million of a dividend paid quarterly. What has favored this large amount paid to Berkshire Hathaway is that the growth has been seen by the payout. KO stock has seen a dividend hike for more than 50 consecutive years. These actions have given KO stock the label of being a “dividend king.”
Buffett is a huge fan of the beverages offered by KO stock and has mentioned to the public that he does consume a few cans a day. This is not the reason for the investment, rather it was the company’s business operations and presence around the world. The products offered by KO are very affordable and protected from inflation. Due to the low-cost nature, Buffett knew consumers around the world wouldn’t mind paying a higher price as time passed.
Buffett foresaw that the company has a presence around the world and had many more opportunities around the world. This would include countries such as China and India. These countries had large growing populations with low income families, who one day would be able to afford the beverages on a regular consistent basis. To no one’s surprise Buffett was correct with his assessment.
#5 American Express Company
American Express Company (NYSE:AXP) is a global financial services company. The focus for the company is to offer products and services related to charge cards, credit cards, and travel-related services, which are offered to both consumers and businesses around the world.
Buffett was attracted to the unique services and products that AXP offered to the markets. The focus is servicing wealthy clients from around the world. Yes, there are other institutions that are focused on high net worth individuals, but not with a 100% focus as AXP does. With higher net worth individuals, there is less likelihood for clients defaulting on their payments and more of a possibility of realizing a profit. Buffett’s early investment in AXP has paid off with being a shareholder for more than 20 years. Buffett is AXP’s largest shareholder with approximately 16% of the total shares outstanding. (Source: “American Express Company (AXP),” Yahoo! Finance, last accessed August 8, 2017.)
There is a strong amount of recurring revenue within the business, which is then used to rewards shareholders. One method used by the company to reward shareholders such as Buffett has been through growing dividend payments. The dividend is one that is paid out on a quarterly basis and has seen at least one hike in the payout annually.
The growth has occurred in the dividend because the management team ensures to keep strict rules and guidance lines within the organization. For instance, the management team has made sure to try to keep the dividend payments between 20% to 30% from each dollar of earnings. This gives the ability for the management team to reinvest the remaining capital back in the business. One example would be the partnership that was signed with Apple Inc.; to allow user of the American Express platform to use “Apple Pay.: If AXP didn’t invest into their business, then there wouldn’t be the possibility of these types of deals.
As times have changed, so has the investment within the company. This would be one of the major reasons why Buffett has been a long-term investor in AXP stock. He has reorganized great operations at the top of AXP.