3 Cheap Dividend Stocks That Helped Warren Buffett Earn $3.7 Billion in Dividends in 2017

Warren Buffett, the revered billionaire investor and Chairman and CEO of $500 billion holding company Berkshire Hathaway, just released his annual shareholder letter in which he discussed a number of intriguing topics.

Perhaps the most noteworthy one was the revelation that Republican tax cuts contributed $29 billion to Berkshire Hathaway Inc. (NYSE:BRK.A)‘s bottom-line last year. That clearly proved irksome to Buffett, who supported Hillary Clinton during the 2016 Presidential Elections and was not fond of the idea of tax cuts for the wealthy. As Buffett made clear in the letter, the windfall “did not come from anything we accomplished at Berkshire.”

The letter also revealed that Berkshire earned quite a windfall from its collection of dividend stocks as well, though not even close to what the tax cuts “earned” it. The holding company’s huge investments in companies like Apple Inc. (NASDAQ:AAPL) (1.44% annual dividend yield) and Wells Fargo & Co (NYSE:WFC) (2.64%) delivered dividend payments of $3.7 billion to Berkshire last year.

In this article, we’re going to look at three of Warren Buffett’s less heralded stock investments which also contributed dividend payments to Berkshire in 2017. With Buffett being a long-term value investor, these stocks should be of prime interest to anyone looking to add some stable dividend stocks to their portfolios for the foreseeable future.

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Warren Buffett and Billionaires

Torchmark Corporation (NYSE:TMK)

How Many Shares Berkshire Owns: 6.35 million

How Much Money Berkshire Has Invested in the Stock: $576 million

Torchmark Corporation (NYSE:TMK) Annual Dividend Yield: 0.69%

Buffett Loves Insurance: The insurance industry has long been a favorite of Buffett’s and this company has long been one of his favorites in the sector. Buffett has been a shareholder of Torchmark, a provider of health and life insurance, since late-1999, buying in during the dot-com boom when companies like Torchmark were being punished by the markets for being “old-economy” companies. Buffett knows the insurance industry as well as anyone and has previously referred to it as Berkshire’s most important sector, so when he likes an insurance company, chances are it’s doing something (or a lot) right.

Share Buybacks to Slow, Dividends to Rise?: Torchmark Corporation (NYSE:TMK) has aggressively repurchased shares in recent years to boost its stock price, but with interest rates rising, it’s expected that share buybacks will begin to slow in the coming years. That, in conjunction with Torchmark’s elevated stock price, could lead the company to begin hiking its dividend payments as a more effective means of returning cash to shareholders.

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On the next page we’ll look at two more cheap dividend stocks that the greatest investor of all time loves.

Graham Holdings Co (NYSE:GHC)

How Many Shares Berkshire Owns: 107,575

How Much Money Berkshire Has Invested in the Stock: $60.07 million

Graham Holdings Co (NYSE:GHC) Annual Dividend Yield: 0.88%

Buffett Maintains Small Tie to Graham Family: Buffett has also been an investor of this stock for decades, dating back to when it was called The Washington Post Company. The investment lead to Buffett developing a close relationship with Katherine Graham, who led her family’s newspaper as its publisher for two decades. That particular asset was sold to Amazon.com, Inc. (NASDAQ:AMZN) in 2013 and by early-2014, Buffett had exited the majority of his stake in the company after coming to terms on a deal that exchanged his shares for some of the company’s media assets. He retained 107,575 shares, which he still holds to this day.

What is Graham Holdings Co (NYSE:GHC) Up To Now?: With The Washington Post long gone as one of its primary assets, Graham Holdings now relies on its Education division to provide the bulk of its revenue ($1.52 billion in 2017). However, the Education division’s revenue and income declined in 2017, with income from higher education shrinking by 34% year-over-year. The Television Broadcasting division was also hit hard by an operating income decline of 32% last year, which the company blamed on vastly increased network fees at its two NBC affiliates.

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Store Capital Corp (NYSE:STOR)

How Many Shares Berkshire Owns: 18.62 million

How Much Money Berkshire Has Invested in the Stock: $485 million

Store Capital Corp (NYSE:STOR) Annual Dividend Yield: 5.17%

Buffett Enters the REIT Space: Buffett added just a handful of major positions to Berkshire’s portfolio in 2017, one of which was this large stake in Store Capital Corp (NYSE:STOR), added in the second-quarter of last year. It represented Buffett’s first investment in a real estate investment trust (REIT), an industry that seems to be a natural fit for the Oracle of Omaha.

Not Your Average REIT: Unlike some REITs, which are highly reliant on companies in the struggling retail sector to rent their properties, Store Capital has limited exposure to the retail sector through its more than 1,800 properties, which have a collective occupancy rate of 99%. The company’s long-term leases inked with high-quality tenants make it one of the most stable REITs, with built-in rent escalators that will keep its FFO growing and its already-impressive dividend payments rising.

Hedge Fund Ownership of Store Capital Corp (NYSE:STOR): As of the end of 2017, 15 hedge funds in our database owned 12.1% of Store Capital Corp’s shares, worth $599 million. Berkshire’s position accounted for the bulk of that figure, while real estate specialist AEW Capital, lead by Jeffrey Furber, also owns a large stake in Store Capital, valued at over $56 million.

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Disclosure: None