In this article, we discussed the importance of dividend stocks for Berkshire Hathaway’s portfolio and examined the 12 best value dividend stocks to buy now according to Warren Buffett.
The legendry value investor Warren Buffett’s investment holding Berkshire Hathaway expects to collect close to $4 billion in dividends this year. Buffett’s stock portfolio is composed of 49 stocks at the end of the latest quarter and 31 of them pay a dividend. What’s more, Berkshire’s nine of the top ten stock positions, which accounted for 87% of the overall 13F portfolio, offer hefty dividends. Indeed, the dividend potential of several of Buffett’s stock holdings will increase strongly this year due to economic reopening and easing social distancing policies. Further bolstering dividend returns for Berkshire Hathaway Inc. (NYSE: BRK-A) this year is its big stake in dividend-paying financial and energy companies that are leading the S&P 500 gains. The growth in energy, consumer staples, and financial stocks is one of the key reasons behind Berkshire Hathaway’s stunning stock price rally of 39% year to date.
The recovery in value and dividend stocks pushed the S&P 500 and Dow Jones Industrial Average to a new all-time high this week. The flurry of strong economic data has also been adding to SPI and DJI gains. The jobless claims tumbled below 600,000 while reports hint retail sales grew nearly 10% for March compared to the previous month. The improving business and economic trends are helping dividend stocks in beating the growth stocks and the broader market index for the first time in many years. The Dow Jones U.S. Select Dividend Index grew 21% so far in 2021 and S&P 500 high dividend index is up 19% year to date.
Warren Buffett says investing is very simple:
“You don’t need to be a rocket scientist. Investing is not a game where the guy with a 160 IQ always beats the guy with a 130 IQ. Rationality is essential. You need a stable personality”
He doubled down on his stock positions in the dividend-paying companies during the fourth quarter. The Oracle of Omaha initiated a position in 3 stocks during the December quarter and all of them are well-known dividend payers. These stock positions include Verizon Communications Inc. (NYSE: VZ), Chevron Corporation (NYSE: CVX), and Marsh & McLennan Companies, Inc. (NYSE: MMC). His firm also raised stakes in dividend-paying healthcare stocks during the December quarter.
Last year, Berkshire’s returns lagged the broader market index. The firm’s operating income fell 9% year over year in 2020 and it made no sizeable acquisition. In 2021, however, Buffett eyes to buy more stakes in well-run companies instead of acquiring complete businesses.
“In aggregate, we expect our share of the huge pile of earnings retained by Berkshire’s non-controlled businesses (what others would label our equity portfolio) to eventually deliver us an equal or greater amount of capital gains. Over our 56-year tenure, that expectation has been met,” Buffett said in an investor letter.
Before digging deeper into Warren Buffett’s 12 best value dividend stocks to buy now, let’s briefly take a look at his most favorite sectors and portfolio concentration. Buffett’s 84% of the $269 billion worth of underlying stock portfolio is concentrated towards three sectors: Information technology (44.29%), Finance (27%), and consumer staples (12.73%). Apple Inc. (NASDAQ: AAPL) is Buffett’s largest stock holding with 44.25% of the weighting in the 13F portfolio. The top ten holdings represent 87% of the stock portfolio.
Warren Buffett’s reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s start reviewing the 12 best value dividend stocks to buy now according to Warren Buffett. We examine Berkshire’s latest 13F holdings for this analysis.
Best Value Dividend Stocks to Buy Now According to Warren Buffett
12. Bank of America (NYSE: BAC)
Billionaire Warren Buffett held a huge stake in banking giant Bank of America (NYSE: BAC) at the end of 2020, accounting for 11.35% of the portfolio. The bank offers a dividend yield of 1.84% at present despite a sharp rally in the share price. BAC stock price is up 68% in the twelve-month.
GoodHaven Capital Management, a concentrated portfolio investment management firm, highlighted a few stocks including Bank of America in the fourth quarter investor letter. Here is what GoodHaven Capital Management stated:
“Finally, the Federal Reserve has just relaxed share buyback restrictions for Bank of America (and some of their brethren) – a positive development. We added to Bank of America during the last six months. We continue to find plenty of potential new investments to consider, even after the market’s recent material rebound.”
11. Procter & Gamble (NYSE: PG)
The consumer staples giant Procter & Gamble (NYSE: PG) is a safe stock for a dividend portfolio. The company lifted its dividend in the last 64 straight years. It currently offers a quarterly dividend of $0.79 per share, yielding around 2.30%. Warren Buffett held 315,400 shares of Procter & Gamble at the end of the fourth quarter.
The Procter & Gamble Company was in 83 hedge funds’ portfolios at the end of the fourth quarter of 2020 compared to 75 positions in the previous quarter.
10. Johnson & Johnson (NYSE: JNJ)
Johnson & Johnson (NYSE: JNJ) raised its dividends in the last 58 successive years. Its dividend growth rate in the past five years averages around 6.13%. The company currently offers a dividend yield of 2.52% with a quarterly dividend of $1.01 per share. Warren Buffett held 327,100 shares of JNJ valued at around $51 million.
Johnson & Johnson was in 81 hedge funds’ portfolios at the end of December compared to 82 positions in the previous quarter.
9. U.S. Bancorp (NYSE: USB)
Warren Buffett’s Berkshire has been holding a position in U.S. Bancorp (NYSE: USB) since the first quarter of 2006 amid its steady share price and dividend growth potential. USB share price soared 20% year to date and it offers a dividend yield of over 3%. The bank’s quarterly dividend currently stands around $0.42 per share.
In their Q4 2020 investor letter, Mairs & Power highlighted a few stocks including U.S. Bancorp. Here is what Mairs & Power stated:
“On the negative side, one of the Fund’s biggest detractor in 2020 was U.S. Bancorp (USB). Like all banks, U.S. Bank was hurt by the difficult interest rate environment and credit cycle concerns. We believe banks are strong enough to survive the current sector doldrums, and they remain some of the market’s most attractive opportunities.”
8. Bristol Myers Squib (NYSE: BMY)
Warren Buffett initiated a position in Bristol Myers Squib (NYSE: BMY) during the third quarter of 2020 and raised his stake by 12% in the fourth quarter. BMY is one of the best value dividend stocks. The company raised dividends in the past 14 straight years. BMY currently offers a dividend yield of 3.04%.
Bristol Myers Squibb Company was in 131 hedge funds’ portfolios at the end of the fourth quarter of 2020 compared to 124 positions in the previous quarter. Our calculations also showed that BMY is ranked 13th among the 30 most popular stocks among hedge funds (click for Q4 rankings).
In the Q4 2020 investor letter, Wedgewood Partners highlighted a few stocks and Bristol Myers Squibb Co (NYSE:BMY) is one of them. Here is what Wedgewood Partners said:
“Bristol-Myers Squibb recently reported accelerating sales as much of the medical services industry returned to work. The Company continues to expect double-digit earnings growth over the next few years, driven by existing drugs, in addition to a broad pipeline of new drugs and indications. While the market remains fixated on a couple of patent expirations that could occur over the next several years, we think this is well-known at this point, yet the market still undervalues a couple of key acquisitions the Company has made in the past few years, particularly Celgene, which was acquired for a song.”
7. Coca-Cola Inc. (NYSE: KO)
The dividend king Coca-Cola Inc. (NYSE: KO) is the long-running stock holding of Warren Buffett’s portfolio, accounting for 8.13% of the overall portfolio. The company currently offers a dividend yield of 3.15% with a quarterly dividend of $0.42 per share. Shares of KO rallied 12% in the last twelve-month but struggled to trade in green since the beginning of this year.
The Coca-Cola Company was in 62 hedge funds’ portfolios at the end of the fourth quarter of 2020 compared to 60 positions in the previous quarter.
6. Merck & Co., Inc. (NYSE: MRK)
Merck & Co., Inc. (NYSE: MRK) is one of the best value dividend stocks to buy now because of its 11 straight years of dividend growth history. The company offers a dividend yield of 3.39% and its quarterly dividend is currently standing at $0.65 per share. Its five-year dividend growth averages around 6.72%. The legendary investor initiated a position in Merck during the third quarter and added to his existing position by 28% in the December quarter. The company expects to generate $52 billion in revenue in 2021 while earnings per share is forecasted to reach $6.51.
Merck & Co. was in 82 hedge funds’ portfolios at the end of December compared to 80 hedge fund positions in the previous quarter.
5. The Kraft Heinz Company (NASDAQ: KHC)
The consumer staples company Kraft Heinz (NASDAQ: KHC) is the fifth-largest stock holding of billionaire Warren Buffett’s portfolio. His firm held more than $11 billion of stake in KHC, representing 4.18% of the overall portfolio. Despite a dividend cut of 36% in 2019, the company offers a quarterly dividend of $0.40 per share.
Here is what Warren Buffett stated about Kraft Heinz in his fourth-quarter investor letter:
“We exclude our Kraft Heinz holding — 325,442,152 shares — (In the list of 15 common stock investments that at yearend were our largest in market value) because Berkshire is part of a control group and therefore must account for that investment using the “equity” method. On its balance sheet, Berkshire carries the Kraft Heinz holding at a GAAP figure of $13.3 billion, an amount that represents Berkshire’s share of the audited net worth of Kraft Heinz on December 31, 2020.”
4. STORE Capital Corporation (NYSE: STOR)
The real estate investment trust STORE Capital Corporation (NYSE: STOR) is a member of Warren Buffett’s portfolio since 2017. STOR is weighted around 0.31% of the Berkshire Hathaway portfolio at the end of the December quarter. The real estate investment trust offers a dividend yield of 4.14% at present. The company raised dividends in the past six successive quarters and its dividend growth rate averages around 6.17% in the past five years.
Store Corporation was in 12 hedge funds’ portfolio at the end of the December quarter, down from 20 hedge fund positions in the previous quarter.
3. Verizon Communications (NYSE: VZ)
Verizon Communications is widely considered the best dividend stock to hold for sustainable growth in dividend income. The company offers a dividend yield of around 4.3% and it has raised dividends in the past 8 straight years. It is the sixth-largest stock holding of Berkshire Hathaway, according to the latest 13F filings.
Mott Capital Management, an investment management firm, stated in a Q4 investor letter that 5G would help Verizon’s stock in rebounding in the days ahead. Here is what Mott Capital Management stated:
“Verizon finished the year lower by around 4.3% and has been a hard holding over the past 6 years. It has gone nowhere and has been the one stock I struggle with. However, 5G has finally arrived. If 5G can deliver on the promise I think it can, then Verizon should eventually come around. I remain hopeful.”
2. AbbVie Inc. (NYSE: ABBV)
Berkshire Hathaway initiated a brand new position in AbbVie Inc. (NYSE: ABBV) during the third quarter of 2020 and raised its stake by 20% during the fourth quarter. The pharmaceutical giant is weighted around 1% of Buffett’s portfolio, according to the latest 13F filings. With a history of 8 successive years of dividend growth, AbbVie is a decent stock for a dividend portfolio. ABBV’s potential to generate sustainable growth in revenue and earnings helps it in generating strong cash returns for investors.
AbbVie was in 83 hedge funds’ portfolios at the end of the fourth quarter of 2020 compared to 82 positions in the previous quarter.
1. Chevron Corporation (NYSE: CVX)
The investing titan bought 48.4 million shares of energy giant Chevron Corp (NYSE: CVX) during the December quarter, accounting for 1.52% of the overall portfolio of Berkshire. Chevron is one of the best value dividend stocks because of its extensive dividend growth history. The company offers a dividend yield of more than 4.88% at present. It is only among the few oil companies that sustained their dividends in the pandemic year. On the other hand, the oil giant’s share price grew close to 22% year to date on the back of improving oil market fundamentals.
Chevron Corporation was in 50 hedge funds’ portfolios at the end of December compared to 43 hedge fund positions in the previous quarter.
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Disclosure: None. 12 Best Value Dividend Stocks to Buy Now According to Warren Buffett is originally published on Insider Monkey.
