Billionaire Warren Buffett’s Top Dividend-Paying Stock Picks

Billionaire Warren Buffett is considered one of the greatest value investors of our time, which is why Berkshire Hathaway‘s equity portfolio contains in majority positions in companies that have a long history of strong performance, most of which have been held by Berkshire for decades. Buffett and his team prefer to invest in companies that have strong fundamentals and a sound financial position, which, aside from long-term share price growth, allow the investor to benefit from a significant inflow of cash from dividend payments. On Monday, Berkshire filed its 13F filing for the end of March, the highlights from which we have discussed earlier. In this article, let’s take a closer look at the best dividend-paying stocks from Berkshire Hathaway’s equity portfolio.

Berkshire Hathaway is one of over 760 smart money investors, whose equity portfolios we track as part of our small-cap strategy. Research has shown that, despite the delay between the end of a quarter and the filing of the 13F, smaller investors can still benefit from imitating some of the positions that hedge funds and other institutional investors are bullish on. Our strategy is focused on identifying the best small-cap stocks that the funds in our database are collectively bullish on (see more details here).

Wells Fargo & Co (NYSE:WFC) represented Berkshire’s second-largest equity position, which contained 479.70 million shares worth $23.20 billion at the end of March. The stock has declined by around 10% year-to-date and currently sports a dividend yield of 3.12%, based on the company’s $0.38 quarterly dividend. In April, Wells Fargo & Co (NYSE:WFC) upped the dividend by just 1%, which disappointed investors, who were expecting a more significant raise, similar to last year, when the bank increased the dividend by 7%. However, the company added that it had submitted its 2016 Capital plan to be reviewed by the Federal Reserve and once it will be completed, Wells Fargo might further increase the dividend. Aside from Berkshire Hathaway, other shareholders of Wells Fargo & Co (NYSE:WFC) include Alex Snow’s Lansdowne Partners and Ken Fisher’s Fisher Asset Management. During the first quarter, Lansdowne Partners boosted its position by more than 108% to 20.48 million shares, while Fisher Asset Management inched up its position by 1% to 19.10 million shares.

On the third spot in Berkshire’s equity portfolio is The Coca-Cola Co (NYSE:KO), which the fund reported an $18.56 billion stake containing 400.0 million shares. In a recent interview on CNBC, Buffett defended Coca-Cola’s products, saying that he drinks five cans of Coke a day and he is “happy and enjoys life”. He added that the ‘sugar tax’ on soft drinks is “illogical”, because it doesn’t affect other high-sugar products. However, Buffett also mentioned that The Coca-Cola Co (NYSE:KO) is not one of the investments that he would never sell. Meanwhile, The Coca-Cola’s stock sports a dividend yield of 3.19%, higher than the industry average of 2.6%. Earlier this month, DividendChannel included The Coca-Cola Co (NYSE:KO) in its ”S.A.F.E. 25” list of stocks, highlighting the high dividend yield and a strong track record of dividend growth. Donald Yacktman’s Yacktman Asset Management is another shareholder of Coca-Cola, owning 18.29 million shares, according to its latest 13F filing.

On the next page, we are going to discuss the other three dividend stocks from Berkshire’s equity portfolio.

In the tech space, Berkshire’s top bet is represented by International Business Machines Corp. (NYSE:IBM), in which the fund owns 81.23 million shares worth $12.30 billion. International Business Machines Corp. (NYSE:IBM)’s stock has lost 15% over the last 52 weeks as the company is still facing challenges in software and services business and is transitioning its focus towards cloud computing. This week, the company laid off some employees as part of a transition process, which could eliminate 14,000 jobs, according to a Stanford Bernstein estimate. Nevertheless, the decline has pushed International Business Machines Corp. (NYSE:IBM)’s dividend yield to 3.80% based on the $1.40 quarterly dividend the company pays. Overall, 53 funds from our database held shares of IBM at the end of March.

In Phillips 66 (NYSE:PSX), Berkshire increased its position by 22% on the quarter to 75.55 million shares worth $6.54 billion. Phillips 66 (NYSE:PSX) currently pays a dividend of $0.63 per quarter and its stock has a yield of 3.32%. The decline in oil prices affected refiners the least and many chose to seek refuge in refining stocks during the slump in oil prices, however, the mild winter affected the demand of some types of fuels, which led to many refiners miss their estimates in the last financial results, according to reports. Phillips 66 posted EPS of $0.67, missing the estimates by $0.20. Nevertheless, Phillips 66 (NYSE:PSX) also has a strong chemicals business and it has raised its dividend by 12.5% earlier this month. Berkshire is the top shareholder of Phillips 66, followed by David Cohen and Harold Levy’s Iridian Asset Management, which held 3.93 million shares at the end of the first quarter.

Finally, General Motors Company (NYSE:GM) represented Berkshire’s 14th largest position, which contained 50 million shares worth $1.57 billion. However, General Motors Company (NYSE:GM) has the highest dividend yield among the stocks in this article, which amounts to 4.97%, based on the $0.38 quarterly dividend. General Motors posted better-than-expected financial results for the first quarter, with EPS of $1.26 and revenue of $37.30 billion, compared to estimates of $1.01 and $35.75 billion, respectively. Nevertheless, the stock has lost 10% year-to-date and is trading at just 5.1 times forward earnings, which makes the stock extremely cheap, but investors are worried regarding General Motors Company (NYSE:GM)’s high amount of debt and its dependency on the US market, which will be affected when the Fed raises interest rates. With ownership of 15.30 million shares, billionaire David Einhorn’s Greenlight Capital is another top shareholder of General Motors.

Disclosure: none