Warren Buffett is a lot of things, but an income investor is not one of them. The multi-billionaire does not need extra income. Not that either Berkshire Hathawaywhich has the eighth largest market capitalization of all US companies.
However, Buffett does like dividend stocks. In fact, Berkshire Hathaway’s portfolio includes six high-yield dividend stocks (where a high yield is defined as a stock that is at least twice as high as the S&P500.)
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Let’s take a look at Buffett’s list of high-yield six-packs, from highest to lowest future dividend yield. Kraft Heinz belongs to the top, with a return of 5.23%. Berkshire owns so much of the food company that it is listed on its website as one of the conglomerate’s subsidiaries.
Chevron (NYSE:CVX) takes the number 2 spot. The oil and gas giant pays a future dividend yield of 4.09%. It is also Berkshire’s fifth largest holding company.
Diageo trails Chevron, with a yield of 3.47%. The British alcoholic drinks maker is one of Berkshire’s smallest holdings, making up less than 0.1% of the total portfolio.
The following is Ally financially (NYSE: ALLY). The bank’s future dividend yield is 3.37%. Buffett took a position in Ally in the first quarter of 2022.
Holding sixth position is another bank — Citi Group (NYSE:C). The financial services company offers a future dividend yield of 3.27%. Like Ally, Buffett first bought Citigroup in early 2022.
Coca-cola (NYSE: KO) is the caboose on our list, with a 3.1% yield. However, the major food and beverage company is No. 1 in another important category, as the stock that Buffett has owned the longest.
We’ve seen how these six stocks stack up against each other in terms of dividend yields. How do they compare on other fronts?
Coca-Cola has the most impressive dividend track record. The company has raised its dividend for 62 years in a row, making it part of the elite group of stocks known as Dividend Kings. Chevron also has an excellent track record, with 37 consecutive years of dividend increases.
The high-yield bank stocks stand out based on valuation. Ally Financial has a low price-to-earnings ratio of 7.9. Citigroup’s expected earnings multiple is around 9.4. Kraft Heinz isn’t much higher, though, with shares trading at around 9.8 times forward earnings.
Ally and Citigroup could also have the best near-term growth prospects if Wall Street is right. The average earnings growth projection for Ally next year is 48.9% LSEG‘s survey of analysts. The consensus earnings growth for Citigroup next year is almost 22.1%. Chevron ranks third in this category, with analysts predicting 9.2% earnings growth.
I think income investors should appreciate some of Buffett’s high-yield dividend stocks. However, if I had to pick just one as the best of the bunch, it would be Chevron.
Buffett clearly likes this oil stock, considering Berkshire’s stake in Chevron is over $18.9 billion. Chevron has an exceptional dividend yield and a strong track record of dividend increases. I fully expect the company to continue its series of dividend increases soon.
While Chevron isn’t Buffett’s most attractively valued high-yield stock, it isn’t super expensive. The oil and gas producer’s shares trade at about 13.3 times forward earnings, well below the average forward earnings multiple of 15.1 for the S&P 500 energy sector.
As we’ve already seen, Wall Street thinks Chevron’s near-term growth prospects are quite good. I agree with that view. The regulatory environment should also be favorable for Chevron (and the oil and gas industry in general) with the incoming Trump administration.
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Citigroup is an advertising partner of Motley Fool Money. Ally is an advertising partner of Motley Fool Money. Keith Speights has positions in Berkshire Hathaway and Chevron. The Motley Fool has and recommends positions in Berkshire Hathaway and Chevron. The Motley Fool recommends Diageo Plc and Kraft Heinz. The Motley Fool has a disclosure policy.
Warren Buffett owns six high-yield dividend stocks. Here’s the best of the bunch. was originally published by The Motley Fool
