The company is well known for repeatedly buying stakes in solid corporations that trade beneath their fundamental value. Also, Buffett prefers long-term dividend stocks. Buffett’s investment in a business demonstrates a degree of confidence for continued successes.
At the end of Q1, Buffett initiated positions in two stocks, exited his position in two stocks, made additional purchases of nine stocks and reduced positions in three companies. Berkshire’s portfolio is weighty on financials (37.4%), consumer goods (25.2%), technology (20%), and services (7%). In this article, I will examine Warren Buffett’s best dividend picks, including The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG) and General Electric Company (NYSE:GE).
| Stock | Shares Held | Percent of Portfolio | Rank | Dividend Yield |
|---|---|---|---|---|
| KO | 400,000,000 | 19.25 | 2 | 2.43% |
| GE | 588,900 | 0.02 | 39 | 3.03% |
| PG | 52,793,078 | 4.76 | 5 | 2.91% |
Source: Whalewisdom.com
Buffett’s ownership history in Coca-Cola
The Coca-Cola Company (NYSE:KO) is a consistent favorite of Warren Buffett’s portfolio, holding second place. At present, Berkshire owns 400 million shares of Coca-Cola, which comprises 19.2% of its portfolio. Based on Whalewisdom, Berkshire has not reduced its holdings in Coca-Cola over the past nine quarters.
How dividends are safe
Since 1920, The Coca-Cola Company (NYSE:KO) has been paying dividends, and over the past 50 years, the company has been able to consistently increase its dividends. At present, Coca-Cola offers a quarterly dividend of $0.28 per share, yielding 2.4%. The company’s dividends are fully backed by Coca-Cola’s solid financial performance.
The Coca-Cola Company (NYSE:KO) has a vast revenue base with strong top-line growth. The company was able to grow revenue by 15% on average in the past three years. Its solid margins allow it to turn increasing sales into high profits. As a representation of high margins, in the trailing-12 months, its net margin stands at 18%. Additionally, the company projects EPS growth of 9% over the next five years
Along with solid top-line growth, The Coca-Cola Company (NYSE:KO) has the ability to generate strong cash flow. Its solid profitability enables it to generate consistently increasing cash flow. At the end of 2012, its operating cash flow stood at $11 billion, representing an increase of $2 billion over the past two years. Its free cash flow also provides the cover to its dividend payments. In the trailing-12 months, The Coca-Cola Company (NYSE:KO)’s dividend payments accounted for only $4.5 billion when free cash flows stood at $7.9 billion.
Buffett’s ownership history in General Electric
At the end of Q1, Buffett did not make any change to his holding in General Electric Company (NYSE:GE). General Electric is one of Buffett’s favorite companies. At present, Buffett holds 0.6 million share of General Electric Company (NYSE:GE), which accounts for less than 1% of his portfolio. General Electric currently stands in 39th place in Buffett’s portfolio.
How dividends are safe
General Electric is one of the best players among diversified-industrial stocks. After an enormous dividend cut in 2009, General Electric was able to consistently increase its dividends. Recently, the company announced a quarterly dividend of $0.19 per share, yielding 3%.
Over the years, General Electric Company (NYSE:GE) has shown solid financial performance. Recently, the company announced first-quarter results with $4.1 billion in operating income, representing an increase of 14% over the year-ago quarter. Along with solid profits, the company was able to increase margins by 40 basis points.
General Electric Company (NYSE:GE) is aggressively working on its cost-cutting plan. The company is seeking to save $1 billion by the end of 2013. With these initiatives, the company is only investing in core industrial business. This shows that General Electric’s restructuring efforts will offset weakness in the markets. These cost-cutting efforts will further enhance its cash flow.
Buffett’s ownership history in Procter & Gamble
The Procter & Gamble Company (NYSE:PG) is ranked in 50th place in Buffett’s portfolio. At the end of Q1, Buffett held 52 million shares of Procter & Gamble. P&G has been one of Buffett’s favorite stocks over the years. At present, The Procter & Gamble Company (NYSE:PG) makes up 4.8% of this great portfolio.
How dividends are safe
The Procter & Gamble Company (NYSE:PG) is always considered a safe investment for income portfolios. This is because the company has raised its dividends by 164%, over the past 10 years. The company is fully supporting its dividends with a smart investment strategy and a solid financial position. It’s free cash flow gives cover to its dividend payments. At the end of Q3, free cash flow was $8.1 billion while dividends only accounted for about $4.8 billion.
At the moment, The Procter & Gamble Company (NYSE:PG) is seeking to grow its EPS by 10%, over last year. The company has been showing tremendous top-line growth. However, competitive pricing and depressed economy condensed its margins. To enhance margins, it has announced a $10 billion cost-savings plan. P&G has decreased its employee headcount and enlarged its investment in organic growth opportunities.
Final notes
These three dividend stocks in Buffett’s portfolio look safe at the moment. All three companies have an established history of paying dividends. Over the years, The Coca-Cola Company (NYSE:KO) has shown solid financial situation and strong product line. Coca-Cola looks like a safe investment with the projected EPS growth of 9% for the next five years. General Electric Company (NYSE:GE) also looks like a safe bet as its cash flows support its dividend payments. In case of The Procter & Gamble Company (NYSE:PG), it is a buy for the long haul.
The article Three Dividend Stocks Favored by Warren Buffett originally appeared on Fool.com and is written by siraj sarwar.
siraj sarwar has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Procter & Gamble. The Motley Fool owns shares of General Electric Company. siraj is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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