TheStreet.com recently ran an article outlining five companies that Warren Buffett holds in his portfolio that yield 3% or better. I decided to take a look at these five companies, since I love dividend companies, and to some degree I love Warren Buffett. (I like to read what he is doing, but I don’t own any of Berkshire Hathaway’s stock.)
I’ve been writing about dividend stocks for nearly a year, and have written close to a hundred articles. I have devised my own ratings system and put together my top ten companies into what I call my Perfect Dividend Portfolio.
My ratings criteria include factors such as yield, number of years paying and raising dividends, five-year Dividend Growth Rate (DGR), five-year projected Earnings Growth Rate (EGR), total return for the past twelve months, PE, and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.
The first company in Buffett’s portfolio is GlaxoSmithKline plc (ADR) (NYSE:GSK), in the pharmaceuticals industry. The company is currently trading at approximately $51 and yields 4.30%.
GlaxoSmithKline plc (ADR) (NYSE:GSK) clearly has no consistent dividend paying or raising strategy, as its dividends have been up and down every quarter like a roller-coaster. I honestly can’t even evaluate it using my ratings system; it would score somewhere in the 0 to 5 range.
As of Dec. 31, 2012, the company comprised 0.09% of Mr. Buffett’s total holdings. He owns 1.5 million shares, worth $76.5 million at today’s price. While this company does contribute only a small amount to his overall portfolio, it is critical to note that he holds only 41 companies, so each should be considered significant on that basis.
The next company is ConocoPhillips (NYSE:COP). The company is currently trading at approximately $63 and yields 4.20%. The company has returned 19.6% over the past twelve months.
It could have a decent dividend-raising history, but mysteriously, the company froze its dividend in 2012 at the same distribution level as 2011. Just a penny more could have maintained the streak, but management chose not to. What’s even more confusing to me is that the payout ratio is a low 43%, and its five-year DGR is a hefty 10.4%, so a claim to consistently rising dividends could make it extremely attractive to income investors.
Other metrics include analysts’ five-year annual growth estimate (4.1%), the company’s PE (10.1) and its dividend-payout ratio (43%).
As of Dec. 31, 2012, Buffett owned 24.1 million shares worth $1.5 billion, and comprising 1.9% of his total holdings.