Led by CEO Warren Buffett, Berkshire Hathaway has paid dividends to its investors only once (a $0.10 per share payout in 1967). Instead, the company chooses to use its capital to invest in its wholly owned businesses and other companies, make new acquisitions, buy government bonds, and buy back its own stock.
With Berkshire shares up more than 3,976,400% since Buffett bought a majority stake in the company in 1965, it’s hard to argue with the Oracle of Omaha’s capital allocation strategy. The stock’s gains over the entire period would have turned a $1,000 investment into more than $42.5 million today.
While Berkshire doesn’t pay dividends itself, Buffett is a big fan of companies that give money back to shareholders through direct payouts. In fact, each of the company’s 10 largest stock holdings pays dividends — and the portfolio is heavily weighted toward just a handful of dividend-paying stocks. Read on for a look at the two dividend stocks that account for 40.5% of Berkshire Hathaway’s $312 billion stock portfolio.
Much more than the dividend
Jennifer Saibil: Apple (NASDAQ: AAPL) was recently included in Buffett’s holy triad of stocks he said he would never sell. As it turns out, he meant he would never sell them full position because he sold some of his Apple shares immediately after his statement.
But that doesn’t mean it’s fallen out of Buffett’s favor. It still accounts for about 28.3% of Berkshire Hathaway’s entire portfolio.
Like the other Buffett forever holdings, Apple is a dividend stock. It doesn’t have a high yield — only 0.45% at the current price, or well below the S&P 500 average of 1.3%. That’s close to the lowest return ever, partly because Apple shares have been stellar this year, up nearly 15% so far this year.
The dividend demonstrates several things that are important to Buffett, regardless of the yield. It is a tangible sign of Apple’s commitment to creating shareholder value and signifies that management is prioritizing its cash position, which is paramount to running a viable and growing business. Apple has a low payout ratio of just 14.9% because it is still in robust growth mode and uses most of its profits for innovation and operations.
Apple has the global brand and moat that Buffett loves, and being able to support that is a key element in maintaining his edge and advantage. Apple fans are known to stick with the company’s platform and buy new models as they come out. They are loyal to the Apple ecosystem, which is distinguished by its innovation, operating system, ease of use, and overall excellence. Buffett has said that Apple is an even better company than his other stocks forever, Coca Cola And American Express (NYSE: AXP).
It’s no surprise that Apple is either beating the market or topping the charts again this year as the most valuable company on the stock market. It’s exciting investors with its advancements in artificial intelligence, and the latest version of the iPhone is expected to be released this month. While it’s already created a lot of millionaires, there’s still a lot more to come from Apple stock.
American Express is now Buffett’s second-largest investment
Keith Noonan: After some major portfolio reshuffles in the second quarter, American Express has caught up with the market Bank of America to become Berkshire’s second-largest total holding. The Oracle of Omaha company owns more than 151.6 million shares of AmEx stock, and the position accounts for 12.2% of its total holdings.
The credit card-focused banking company has posted strong financial results, with its stock up about 58% over the past year. These big gains have also pushed down the company’s dividend yield. That’s not a problem for Berkshire, since it acquired most of its AmEx shares at much lower prices, but is the stock still worth a look for other income-focused investors at current prices?
While the company’s current yield of around 1% may not seem like much, there’s a good chance that shares bought today will yield much higher returns later. American Express has increased its dividend by around 63% over the past three years and hasn’t let off the gas pedal when it comes to growing that dividend.
With the payout increase announced in March, American Express raised its dividend by 17%. Strong financial performance has paved the way for strong growth in the payout, and there is good reason to expect that earnings expansion will continue to support rapid dividend growth.
American Express revenue rose 8% year over year in the second quarter, and non-GAAP (adjusted) earnings per share rose 21%, compared to the same period last year. The company added 3.3 million new card accounts in the quarter and recorded its 24th consecutive quarter of double-digit annual growth in card fees. For the full year, the company expects revenue to grow 9% to 11%, and its midpoint guidance calls for earnings growth of about 21%.
The American Express brand and its financial products continue to grow in popularity. And thanks to its focus on attracting a high-credit-quality customer base, the company also benefits from best-in-class loan default rates. While the stock’s returns are below the S&P 500 average, it still appears to be a worthwhile investment.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has positions in American Express and Apple. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America and Berkshire Hathaway. The Motley Fool has a disclosure policy.
40.5% of Warren Buffett’s $312 Billion Berkshire Hathaway Portfolio Is in These 2 Dividend Stocks was originally published by The Motley Fool
