Led by CEO Warren Buffett, Berkshire Hathaway has become one of the most successful companies in history. The investment conglomerate has a market capitalization of over $1 trillion and is currently ranked as the tenth most valuable company in the world.
In addition to its collection of wholly or partially owned privately held subsidiaries, Buffett’s company owns a portfolio of publicly traded stocks currently worth $300.5 billion. Investors who delve into the allocation of Berkshire’s portfolio will find that the portfolio is actually heavily concentrated around a relatively small number of positions. Those who dig a little deeper might also notice that each of Berkshire’s top 10 stock holdings pays a dividend.
So while Berkshire itself doesn’t pay a dividend, it’s clear that Buffett’s company favors high-quality companies that can reliably return cash to shareholders through direct payments. Read on for a look at two S&P500 shares that make up 39.5% of the investment conglomerate’s stock portfolio.
Keith Noonan: With a market capitalization of approximately $3.67 trillion, Apple (NASDAQ: AAPL) stands as the most valuable company in the world. That position was not reached by accident. The tech giant has often been ranked as the world’s most profitable company over the past decade, and its impressive earnings growth has translated into stellar performance for the company and its shares.
The company’s iPhone line is the centerpiece of Apple’s profit-generating machine, and its hardware typically accounts for the majority of total global smartphone sales revenue, despite many other players in the field. The iPhone’s tremendous brand strength and loyal user base allow Apple to command average retail prices that far exceed its competitors, and the company earns the vast majority of global corporate profits from smartphones. In addition to dominating the mobile market, Apple is seeing strong performance in software and services, wearables and other categories.
Berkshire Hathaway first invested in Apple stock in the first quarter of 2016. The Oracle of Omaha company dramatically increased its investments in the technology leader as profits continued to rise. Despite providing a relatively small dividend yield, Berkshire’s heavy investments in the stock made Apple one of the largest generators of dividend income over the past decade.
Even as Berkshire has made some significant shifts in the composition of its portfolio, Apple remains responsible for 24.2% of the investment conglomerate’s total shareholdings. While the stock pays an annual dividend of $1 per share and yields just roughly 0.4% at current prices, Berkshire’s ownership of 300 million shares means it would be on track to generate $300 million in dividend income over the next year if it were to would keep Apple shares. position at the current level. But recent moves by Buffett’s company suggest dividend yields on the stock could be lower.
Berkshire has sold 605 million shares of Apple since the fourth quarter of last year, reducing its holdings by nearly 70%. Oracle of Omaha has become more cautious about the stock market amid the S&P 500’s roughly 33% rally over the past year. Because the company is a net seller of stock, Berkshire’s pile of cash and short-term bonds now exceeds $325 billion – a record level.
Jennifer Saibil: Warren Buffett owns it American Express (NYSE:AXP) shares since 1995, making it his second-longest holding, close behind Coca-cola (NYSE:KO). He said he would never sell it, and he hasn’t sold a single share yet. American Express has always represented a large portion of Berkshire Hathaway’s portfolio, but has only recently risen to second place since Buffett sold a number of Apple and Apple products. Bank of America (NYSE: BAC) stock.
Berkshire Hathaway owns 21.5% of American Express shares, showing enthusiasm for the company. AmEx also accounts for 15.3% of Berkshire’s total stock ownership.
American Express is Buffett’s classic stock, and it’s no wonder he loves it and has held onto it for so long. It stands out from other financial stocks and even other credit card networks in a number of ways that give it staying power. It targets an affluent customer base that is resilient under pressure and spends more than average in a given time frame. Remember, even though it only has 150 million paying card members, vs Visa‘S (NYSE:V) With 4.5 billion cards, it has almost double Visa’s revenue.
It charges annual fees for most of its products that continue to rise and account for a good portion of sales, yet have high retention rates. That funds the incredible rewards program it offers to paying customers. It also strengthens the bottom line.
AmEx acts as its own bank, unlike the other major credit card networks, which partner with banks to provide shoppers with credit to make purchases. This closed-loop model gives the company more control over the business and creates the brand identity that American Express has cultivated. As a bank, it also has a lot of cash to finance many different businesses, and it makes money from the money it keeps from deposits with net interest income. The downside to that is that it is more exposed to changes in interest rates. However, it has excellent risk management systems and has reported rising profits even as it has had to build up its loss provisions.
American Express has been paying dividends for 25 years and yields 0.9% at the current rate. Buffett doesn’t seem to go for the highest yielding dividends, but most of his dividend stocks have consistency and a long track record. American Express is an excellent choice because of value, safety, and a growing dividend.
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Bank of America is an advertising partner of Motley Fool Money. Jennifer Saibil holds positions at Apple. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Bank of America, Berkshire Hathaway and Visa. The Motley Fool has a disclosure policy.
39.5% of Warren Buffett’s $300.5 Billion Berkshire Hathaway Portfolio Is Invested in These Two S&P 500 Dividend Stocks Originally published by The Motley Fool
