Dividend stocks are the unsung champions of Berkshire Hathaway’s investment success. And Warren Buffett knows that a dividend paying company is both time-tested and profitable.
In this article we’ll look at 3 dividend champions which, together, are on course to generate over $2 billion for Berkshire Hathaway.
#3. Coca Cola Pays Buffett $672 Million Annually
Coca-Cola is Warren Buffett’s longest tenured asset, having bought into the firm way back in 1988.
Berkshire Hathaway (BRK.B) currently owns 400 million shares of the beverage manufacturer, and, assuming that Coca-Cola maintains its annual dividend of $1.68, then Warren Buffett’s company is due to net a cool $672 million from just this holding alone.
Of Berkshire’s top 3 paying dividend stocks, Coca-Cola pays out the largest per-share yield at 3.11%. This is a lot more than the average S&P 500 yield which stands at 1.6% and is also one of the few inflation-busting dividends on the market.
Buffett’s stake in Coca-Cola is pretty large – and through his share holdings he owns 9.3% of the company. Coca-Cola is also his fourth biggest portfolio holding, at just under $22 billion, and it’s important for Berkshire Hathaway’s future fortunes that Coca-Cola continues to perform.
That said, the brand has had a tough 18 months. Due to the coronavirus crisis and the effect it’s had on the hospitality industry, both Coca-Cola’s top and bottom lines have been hit this year.
But not all the company’s woes can be blamed on COVID-19; the drinks producer was on down trend before the virus outbreak, with shifting consumer trends seeing the Coca-Cola brand suffer as more and more of its traditional customers changed their buying towards healthy beverages and snacks.
Coca-Cola’s forward P/E ratio is currently rated at 25 according to analysts, which is unusually high for a company of its kind. But the firm is predicting a free cash flow well above its dividend obligation, meaning investors should feel safe for the time being.
#2. Bank of America Dividend Paid To Buffett: $743 M
Warren Buffett likes his financial stocks, and with good reason too; the Oracle of Omaha’s Bank of America holdings are due to make Berkshire Hathaway $743 million in dividend payouts over the course of this 2021, making it the second largest dividend generator on his list of investments.
Bank of America isn’t just a big dividend-making machine for Buffett either, it is also the second largest company on Berkshire Hathaway’s portfolio by total value.
And with over 1 billion of BOA’s shares on its books, Buffett and his investment company now owns 12.1% of the firm. The bank’s dividend yield is lower that Coca-Cola’s at 1.74%, with an annual dividend of $0.72.
Buffett’s confidence in Bank of America has been strong over the years, and his faith has been handsomely rewarded since.
After having bailed out the bank in August 2011 with a $5 billion cash investment at a time when the company was struggling, Buffett managed to secure a deal where he received preferred shares and stock warrants that he was able to exercised in 2017.
This left him with a stake in the bank worth more than three times his initial investment, and he has stood by the firm to this very day.
#1. Apple Pays Berkshire $744 Million A Year
Since last year’s high-profile sale of Apple stock from the Berkshire Hathaway portfolio, Warren Buffett has come out publicly and admitted the move might have been a mistake. That’s not surprising – Apple is now Buffett’s largest dividend revenue generator, with a total payout in 2021 penciled in at over $744 million.
Apple has been a lucrative investment for Warren Buffett after first buying stock in the company in 2016; and having spent just $31 billion gaining his stake, the tech company is now worth $118 billion to the Hathaway portfolio, and is by far its largest holding.
Strangely enough, considering that Apple is Warren Buffett’s biggest dividend contributing company, its dividend yield is the lowest in this list of top 3 at only 0.64%.
However, this is slightly misleading; the yield only seems low because of Apple’s stellar share price run these last couple of years, and the company actually has one of Wall Street’s biggest nominal payouts of around $14 billion per year. This would be even higher if the firm had not so aggressively bought back its own stock of late.
But why does Buffett like Apple so much?
Well, it’s precisely this share repurchasing plan that makes Apple so tempting to the Berkshire boss, as well as its brand power and superior product.
And at the last Berkshire Hathaway shareholder meeting, Buffett was singing the praises of Apple’s CEO, Tim Cook, claiming that Cook was doing things with Apple that even its late talisman, Steve Jobs, couldn’t.
Don’t expect Warren Buffett to sell any more Apple stock anytime soon. The company’s valuation surged more than 80% in 2020, and outperformed its fellow tech rivals Amazon (AMZN), Facebook (FB) and Alphabet (GOOG). It hit its highest ever share price earlier this year, and Apple, astonishingly, is probably undervalued right now.
As for its dividend payout, that’s not in any doubt either. The firm has a staggering $94 billion in cash it can pick on at any time it likes, and generated an operating cash flow in 2021 of over $75 billion.
Furthermore, Apple’s sales numbers have shocked even the most hard-nosed analysts lately; in its last quarter it reported exponential Mac revenue and record iPhone figures.
Apple is doing well – and that’s just what Warren Buffett wants to hear.
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