Berkshire Hathaway Inc. (NYSE: BRK-A) and Warren Buffett generally hold close to 40 different stock positions in the Berkshire Hathaway portfolio of U.S.-listed shares. Anyone who has followed Buffett’s investment holdings through time knows that he loves to invest in dividend stocks. It also happens that 24/7 Wall St. loves dividends as well.
We wanted to take a look at the eight highest-yielding dividends, since that was effectively the top 20% of the Berkshire Hathaway Inc. (NYSE: BRK-B) holdings. You will see that some of these stakes actually might not be growing inside the Berkshire Hathaway portfolio. Yet dividend investors might take careful note here that, if it is good enough for Warren Buffett, then perhaps the selection is good enough for the rest of us.
As a reminder, Buffett tries to take a very long-term approach. His new portfolio managers may be trading more nimbly in and out of positions, but Buffett has been known for his “buy and hold forever” mentality. He prefers quality over price, and with quality, one key metric is how solid the dividend is. Buffett often likes to buy more shares when they “go on sale” after a market correction as well.
These highest-yielding stocks inside of Berkshire Hathaway all fit into a “buy and hold forever” strategy for most investors. This even holds true for the stakes that have been lowered to very small positions inside the Berkshire Hathaway portfolio.
We recently evaluated the top 10 highest-yielding dividend stocks in the S&P 500, but this was based on the safety of the highest-yielding dividends paying more than 3% rather than just the absolute highest yields available. ADRs were not counted to keep the review consistent with dividend stability in dollars.
The following have been organized by the dividend yield, and the share price and the trading range of the past year are shown, along with the size of Buffett’s stake. In order to indicate whether these dividends are safe, we also included the price-to-earnings (P/E) ratio based on this year’s expected earnings, as well as the income payout ratio and the implied upside in the stock to the Thomson Reuters consensus one-year share price target from Wall Street analysts.
These are the eight highest-yielding dividend stocks owned by Warren Buffett and Berkshire Hathaway.
> Buffett’s Stake: 49.25 million shares, or $3.54 billion
> Dividend Yield: 2.6%
> Share Price: $71.87
> Year Range: $67.37 to $79.96
The Wal-Mart Stores Inc. (NYSE: WMT) stake has been raised through time at Berkshire Hathaway. Buffett likes to bet on America, and this is the largest retailer of them all. Its market cap of $234 billion dwarfs every competitor by far. Buffett even has tolerated and grown his stake in Walmart when labor issues have added negative public relations around the company. Walmart also is buying back large amounts of stock, and its dividend yield outpaces almost all retail companies. Walmart is valued at just under 14 times earnings, and it pays out about 36% of normalized income as dividends. The consensus price target of $81.73 for the stock implies upside of almost 14%.
7. United Parcel Service
> Buffett’s Stake: 59,400 shares, or only $5.4 million
> Dividend Yield: 2.7%
> Share Price: $90.03
> Year Range: $69.56 to $92.12
United Parcel Service Inc. (NYSE: UPS) has dwindled to a tiny stake in the Berkshire Hathaway public holdings. We often wonder two things: 1) why does Buffett even bother keeping such a small position, and 2) why he does not buy significantly more shares. The company has only one major competitor outside of the U.S. Postal Service, and it fits into the forever category, until Star Trek transporters are invented a few hundred years from now. UPS has a market cap of $84.5 billion, which would be large enough for Buffett to own much more stock if he so chooses. Unfortunately, and perhaps the reason Buffett is not buying more shares, UPS is not a cheap stock, at almost 19 times earnings. The shipping giant pays out about 52% of normalized earnings as dividends, and the consensus price target of $95.95 implies upside of about 6.6%.