Warren Buffett is arguably the greatest investor of all time. He has grown his wealth by investing in and acquiring business with strong competitive advantages trading at fair or better prices. This investment style has served Warren Buffett well – his net worth is now over $70 billion.
A total of 89.5% of Warren Buffett’s portfolio (BRK-A) is invested in dividend stocks. Many of these dividend stocks have paid rising dividends over decades. Warren Buffett prefers to invest in shareholder friendly businesses with long track records of success. It happens that dividend stocks with long histories of dividend increases match what Warren Buffett looks for in a stock investment.
Warren Buffett’s Portfolio
Warren Buffett’s portfolio currently consists of 47 stocks. Of these, 33 are dividend stocks. Warren Buffett’s portfolio as a whole generates a dividend yield of 2.17%; about 15% higher than the S&P 500’s dividend yield.
Warren Buffett’s top 6 holdings make up over 70% of his portfolio. These 6 stocks represent Warren Buffett’s highest conviction picks based on the amount of money he has invested in them. All of his top 6 holdings are dividend stocks. His top 6 holdings have a portfolio weighted dividend yield of 2.53%, well above the average of his portfolio. Three of the top 6 are Dividend Aristocrats.
You can download Warren Buffett’s full portfolio of 47 stocks by clicking the button just below this paragraph. The spreadsheet includes dividend yield and the percentage each stock holding is of Warren Buffett’s total portfolio.
Download Warren Buffett’s Portfolio Here
Warren Buffett’s Top 20 Highest Yielding Dividend Stocks
Each of Warren Buffett’s top 20 highest yielding dividend stocks are analyzed below. Relevant metrics including price-to-earnings ratio, dividend history, current dividend yield, and historical growth rate are shown to give an idea of the relative investment merit of each business. Reviewing Warren Buffett’s highest yielding dividend stocks may give you new ideas on how to improve your portfolio.
20 – Mondelez International (MDLZ)
Dividend Yield:Â 1.6%
Price-to-Earnings Ratio:Â 20.9 (using adjusted EPS)
Years of Steady or Rising Dividends:Â 45 (including history with Philip Morris-PM)
Percent of Warren Buffett’s Portfolio: 0.02%
10 Year Earnings-Per-Share Growth Rate:Â N/A (due to spin-off)
Mondelez is the global leader in candy, chocolate, and biscuits (cookies). The company is number 2 in the world in gum. Mondelez’ global leadership position in sweet snacks comes from its excellent portfolio of high quality brands (shown in the image below).
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Mondelez International was named Kraft prior to 2012. In October of 2012, the company spun-off most of its salty/savory North American brands into Kraft Company and renamed itself Mondelez International. The spin-off focused Mondelez on sweet snacks and international growth.
Since the spin-off, Mondelez has been focusing on restructuring its operations for greater efficiency. The company’s earnings-per-share since the spin-off are shown below:
- 2012 Earnings-per-share: $1.40
- 2013 Earnings-per-share: $1.51
- 2014 Earnings-per-share: $1.76
Earnings-per-share have grown 25.7% since the spin-off. Revenue-per-share has grown just 4.6% over the same time period (about in line with inflation). Mondelez’ strong earnings growth is coming entirely from better operating efficiency. Fortunately for shareholders, the company still has plenty of room to reduce overhead, cut waste, and increase operating efficiency. This will result in increased margins and further earnings-per-share growth.
Despite this, fiscal 2015 will likely show earnings-per-share declining due to the strength of the U.S. dollar and the resulting negative currency effects. Over the long-run, Mondelez management believes it can grow constant-currency earnings-per-share around 10% a year. This growth combined with the company’s current 1.6% dividend yield gives investors expected total returns of around 11.6% a year.
Mondelez appears to be trading around the high-end of fair value at this time. The company’s price-to-earnings ratio of 20.9 reflects the company’s low-risk high-quality brands and its growth prospects from further cost-cutting.
19 – Viacom (VIAB)
Dividend Yield:Â 1.9%
Price-to-Earnings Ratio:Â 12.9
Years of Steady or Rising Dividends:Â 6
Percent of Warren Buffett’s Portfolio: 0.57%
10 Year Earnings-Per-Share Growth Rate:Â 12.7% (8 years used due to CBS spin-off in 2006)
Viacom generates 73% of its revenues from several television networks and 27% of its revenues from its film division which owns Paramount Entertainment. Several of the company’s well known media networks/brands are shown in the image below.
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Viacom has very little capital expenditures. As a result, the company generates significant free cash flows – which it uses to reward shareholders with dividends and share repurchases. Over the last 5 years, Viacom has repurchased 9.2% of its shares outstanding a year. In addition, the company has a 1.9% dividend yield. Viacom shareholders can expect returns of about 11% a year from share reductions and dividend payments alone, even if Viacom does not grow earnings.
Fortunately for shareholders, Viacom has managed to grow earnings. Over the last 8 years the company has compounded earnings-per-share at 12.7% a year. The company has achieved very solid growth despite negative headwinds from an evolving at-home entertainment industry. Consumers are increasingly ‘cutting the cord’ with cable and switching to pay-as-you-go services like Amazon Instant Video or monthly services that don’t have long-term contracts like Netflix or Hulu. Despite these negative trends, Viacom has maintained impressive earnings-per-share growth both from underlying earnings growth and massive share repurchases.
As a result of the fear around the cable industry as a whole, Viacom’s stock has fallen from grace. The company is currently trading for a price-to-earnings ratio of just 12.92 despite its portfolio of high quality networks and strong growth. The company appears significantly undervalued at this time. Investors in Viacom could very well see strong gains if fears around the changing at-home-entertainment industry subside.
18 – U.S. Bancorp (USB)
Dividend Yield:Â 2.30%
Price-to-Earnings Ratio:Â 13.73
Years of Steady or Rising Dividends:Â 7
Percent of Warren Buffett’s Portfolio: 1.39%
10 Year Book-Value-Per-Share Growth Rate:Â 7.8%
It is easy to see why Warren Buffett has invested $3.4 billion of Berkshire Hathaway’s portfolio into U.S. Bancorp stock. U.S. Bancorp is the banking industry leader in return on assets, return on equity, and efficiency ratio (the efficiency ratio is calculated as expenses before interest expense divided by total revenue). The image below shows U.S. Bancopr’s industry leading status in these important metrics for fiscal 2014.
Not only is U.S. Bancorp highly profitable, it is also very shareholder friendly. The company targets a dividend payout ratio of 30% to 40% a year and also targets spending 30% to 40% of earnings on share repurchases each and every year. At current price levels, this comes to a shareholder yield of 5.1%. The company has also managed to grow assets at about 7.5% a year over the last decade. With a shareholder yield of ~5% and a 7.5% growth rate, investors can expect total returns of around 12.5% a year from U.S. Bancorp.
U.S. Bancorp currently trades at a price-to-earnings ratio of just 13.73. Banks have traditionally traded at price-to-earnings ratios below those of the overall market due to risk of bank failure and strong competition. U.S. Bancorp has found a way to be more profitable than its peers. In addition, the company remained profitable throughout the Great Recession of 2007 to 2009 – though it did cut its dividend significantly during that period. At its current price-to-earnings ratio, U.S. Bancorp appears to be somewhat undervalued.
17 – M&T Bank Corporation (MTB)
Dividend Yield:Â 2.34%
Price-to-Earnings Ratio:Â 16.26
Years of Steady or Rising Dividends:Â 25
Percent of Warren Buffett’s Portfolio: 0.60%
10 Year Book-Value-Per-Share Growth Rate:Â 5.4%
M&T Bank Corporation is a bank holding company with 696 locations spread across New York, Pennsylvania, Maryland, Virginia, West Virginia, Delaware, and Washington DC. M&T Bank is one of the few banks that did not cut its dividend payments during the Great Recession of 2007 to 2009. M&T Bank Corporation has grown to become the 16th largest U.S. commercial bank.
M&T Bank Corporation shares many similarities with U.S. Bancorp. Like U.S. Bancorp M&T Bank Corporation maintains higher than industry average returns-on-equity and returns-on assets. Additionally, the company is highly regarded for its conservative nature. M&T Bank Corporation does not over extend itself by writing risky loans.
The company’s conservative nature has produced phenomenal results for long-term shareholders. The company has produced 19.4% annualized total returns for shareholders since 1980, one of the highest of any stocks from that time.
M&T Bank Corporation should experience strong growth over fiscal 2015 due to a more favorable commercial loan market. Rising interest rates also favor the company as they lead to a greater spread on interest earned from deposits versus interest paid. Analysts project the company could grow earnings-per-share by around 20% in fiscal 2015.
Shares of M&T Bank Corporation currently trade for a price-to-earnings ratio of 16.3 and a forward price-to-earnings ratio of 12.4. M&T Bank Corporation appears slightly undervalued using the company’s forward price-to-earnings ratio. The company’s future looks bright and it trades at a reasonable valuation multiple. Additionally, M&T Bank Corporation has a dividend yield of 2.34%, well above the S&P 500’s dividend yield. The company’s combination of stable growth, fair valuation, and solid dividend yield should appeal to dividend growth investors looking for exposure in the banking sector.
16 – Phillips 66 (PSX)
Dividend Yield:Â 2.47%
Price-to-Earnings Ratio:Â 11.38
Years of Steady or Rising Dividends:Â 37 (including history with ConocoPhillips)
Percent of Warren Buffett’s Portfolio: 0.50%
10 Year Earnings-Per-Share Growth Rate:Â N/A
Phillips 66 was created in 2012 when ConocoPhillips (COP)Â spun off its downstream, chemical, retail fuel (gas stations), and midstream natural gas divisions. The stock has gained over 30% since lows in early 2015 that resulted from fears about low oil prices. Phillips 66 currently has a market cap of nearly $44 billion.
Phillips 66 refining and chemical divisions stand to benefit from low oil prices. Unlike upstream oil corporations, Phillips 66 is expected to realize record earnings-per-share in fiscal 2015. The company is currently trading at a price-to-earnings ratio of just 11.4. The company’s stock appears to be a bargain at this time.
As a dividend stock, Phillips 66 pays an above average yield of nearly 2.5%. In addition to its above-average dividend yield, Phillips 66 has also been gobbling up its own shares through share repurchases. Since its spin-off in 2012, the company has repurchased about 6% of shares outstanding. The company’s share repurchases combined with its dividend yield give it a shareholder yield of 8.5%.
