Warren Buffett makes billions of dollars in his sleep simply by buying dividend stocks
Warren Buffett has a well-known love affair with stocks that pay dividends. Over half the stocks in Berkshire Hathaway‘s (NYSE:BRK-A) NYSE:BRK-B) portfolio pays dividends. Even after completely selling off stalwart blue-chip dividend payers like Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG), Buffett is on track to rake in around $6 billion in dividend checks this year. This article explores the rest of those Warren Buffet dividend stocks.
Yet the Oracle of Omaha is miserly when it comes to paying dividends himself. Berkshire Hathaway certainly has the means to pay for one. At the end of last quarter, there was a record $157 billion in cash in the bank, but Buffett still refused. He prefers to invest Berkshire’s retained earnings himself rather than allow shareholders to do so.
Almost all of Berkshire Hathaway’s income will come from just seven Warren Buffett dividend stocks. They will pay out more than $5 billion, or over 80% of the total.
What follows are Warren Buffet dividend stocks he collects most of his income from.
American Express (AXP)
There are few companies with the cachet of American Express (NYSE:AXP). It’s one of the reasons Buffett owns the stock and has for decades. He told Bloomberg last year, “You can’t create another American Express.”
Yet it’s been over 20 years since he’s purchased any more of the stock. He’s happy to collect about $363 million a year from the credit card company whose dividend yields 1.5% annually. Buffett owns 151 million shares today. It’s a testament to the preferred stock he bought in the early 1990s and converted to common stock over time.
American Express benefits from targeting higher net-worth individuals than other credit card companies. Because the wealthy naturally tend to weather economic storms better than others, they keep spending even in environments not ideally suited to credit card usage. It makes American Express a stock to consider for when times get tough.
Kraft Heinz (KHC)
Packaged goods company Kraft Heinz (NYSE:KHC) not only pays Buffett one of the largest sums of dividend cash, but it’s also one of his biggest holdings. His 325 million shares deliver almost $524 million in payments on a dividend-yielding a lucrative 4.6% annually. This makes it one of those notable Warren Buffet dividend stocks.
Yet it’s a stock he regrets buying. Sort of. Buffett helped private equity firm 3G Capital finagle a takeover of H.J. Heinz 10 years ago and then maneuvered the ketchup maker into acquiring Kraft Foods. It was not a good deal.
Buffett says he paid about $100 billion in tangible assets, using only $7 billion worth. Although he thinks the combined company is still an overall good business, he admits, “We overpaid for Kraft.”
Kraft Heinz stock was 14% lower in 2023 compared to a 19% gain by the S&P 500. Although the dividend payments partially salved the botched deal, Buffett would undoubtedly like to go back in time and undo the merger.
Integrated oil and gas giant Chevron (NYSE:CVX) is a stock Buffett continues to sell. He shed about 12 million shares in the third quarter, on top of the 10 million he dumped in the second. Yet even with the new share count, Berkshire Hathaway will receive over $650 million in dividend payments.
Buffett still has a total of 110 million shares, which, with a dividend of $0.86 a share yielding 4.2%, provides plenty of cabbage. It’s a stock he may ultimately regret selling down.
Chevron just announced a massive acquisition: It will acquire industry peer Hess (NYSE:HES) for $53 billion in an all-stock deal. The market didn’t like the deal, though, sending the stock careening 10% lower on the news. Shares are off about 20% year to date.
Yet industry consolidation is ramping up. Exxon Mobil (NYSE:XOM) said it was buying Plains Natural Resource (NYSE:PXD) for $43 billion. Fossil fuel demand rises unabated, and Hess gives Chevron assets in Guyana. That’s proving to be a rich area for oil and will surely pay dividends in time.
Coca-Cola (NYSE:KO) is another example of Buffett buying a consumer-facing company. Like American Express, the beverage titan has unparalleled brand recognition and loyalty. According to Brand Finance, Coca-Cola is the world’s most valuable and strongest non-alcoholic drinks brand, valued at $35.3 billion. That’s nearly twice the value of steel cage death match rival PepsiCo (NASDAQ:PEP) at $18.3 billion.
It’s also the stock Buffett has owned the longest. He had been a Pepsi investor (and soda drinker), but switched to Coke in the 1980s and never looked back. He famously drinks several Cherry Cokes a day.
Buffett’s 400 million shares of Coca-Cola stock brings in nearly three-quarters of a billion in dividend income a year. The payout yields 3.1% annually. The stake is equivalent to a 9.3% ownership interest in the beverage company. That would be a big position for you or me, but it actually represents one of Buffett’s smaller holdings.
It’s not a surprise Apple (NASDAQ:AAPL) is so high on the list of Buffett’s biggest dividend stocks. His affinity for tech stocks allowed it to become his largest position, totaling almost 49% of Berkshire Hathaway’s portfolio. Even though Apple’s dividend yields a relatively paltry sum of just 0.5% annually, Buffett makes up for it by owning over 915 million shares.
Moreover, Apple is growing its dividend payment. Over the past decade, the payout has increased by nearly 9% annually. The dividend should continue growing in the future, too. Apple’s payout ratio, or the profits it pays out as dividends, is just 15%. That means not only is the dividend safe, but there is ample room for additional growth. Apple can easily afford to pay and raise the dividend with $60 billion available in cash, equivalents, and short-term investments.
Apple manages to defy expert opinions its stock will crash and burn. Even as product sales slow, services surge. Services revenue surged 16% last quarter, achieving a record across the App Store, advertising, AppleCare, iCloud, payment services, and video. It’s a stock you should always buy on the dip because it seems to pull through in the end.
Occidental Petroleum (OXY)
Another oil stock, Occidental Petroleum (NYSE:OXY), is tricky to place on this list because the 228 million shares Buffett owns result in only $163 million in dividend payments. Yet Berkshire Hathaway also bought $10 billion worth of preferred stock to help Occidental acquire Anadarko Petroleum in 2019. The preferred stock yields 8%, giving Buffett around another $800 million in income. All in all, it’s one of those important Warren Buffet dividend stocks.
However, Occidental has been repurchasing the preferred stock. It bought back $342 million worth of preferred in the third quarter, bringing the total repurchased this year to $1.5 billion. The conditions on the shares, though, require Occidental to pay Berkshire any accrued and unpaid dividends when redemptions are made. Figuring out exactly how much Buffett will make this year will have to wait.
Buffett doesn’t seem to mind. After taking a breather from his buying spree of Occidental stock in the second quarter, Buffett resumed being a buyer of shares in the third, picking up another 4 million shares.
Bank of America (BAC)
Simply by being the one stock Buffett owns the most of, Bank of America (NYSE:BAC) is also the one that cleanly delivers the most dividend income. The billion-plus shares in Berkshire Hathaway’s portfolio generate $990 million in dividends. The $0.96 per share payout yields 3.2% annually.
Buffett has stood by Bank of America stock over the past year, too. He likes the management team and wouldn’t sell shares even when he was clearing out Berkshire of all other bank stocks it owned. Still, despite the stock being down 10% year to date, Buffett hasn’t been a buyer either.
Although it doesn’t look like Bank of America is at risk of going under as a number of regional banks did at the start of 2023, it is hurt more than its peers in today’s high-interest rate environment. Bank of America purchased long-term, low-yield assets during the pandemic, and those are weighing on its performance.
It ought to come out just fine, but it could be causing Buffett’s reticence today considering the financial market turmoil.
On the date of publication, Rich Duprey held a LONG position in CVX, JNJ, KO, PG, and XOM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.