Warren Buffett’s Top 20 Dividend Stocks With The Highest Yields by Ben Reynolds, Sure Dividend
Warren Buffett’s net worth is now over $60 billion.
He is (arguably) the greatest investor of all time.
Buffett has grown his wealth by investing in and acquiring business with strong competitive advantages trading at fair or better prices.
[drizzle]Here’s the surprising part…
Most investors know Warren Buffett looks for quality, but few know the degree to which he invests in dividend stocks.
- 92.5% of Warren Buffett’s portfolio is invested in dividend stocks
- His top 9 holdings have an average dividend yield of 3.0%
- 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 46 stocks.
Of these, 32 are dividend stocks.
Warren Buffett’s portfolio as a whole generates a dividend yield of 2.9%…
About 22% higher than the S&P 500’s dividend yield of 2.3%.
Warren Buffett's top 5 holdings make up over 65% of his portfolio. These 5 stocks represent Warren Buffett's highest conviction picks based on the amount of money he has invested in them.
All of his top 5 holdings are dividend stocks.
His top 5 holdings have a portfolio weighted dividend yield of 3.2%. Warren Buffett's 5 top holdings are:
- Kraft-Heinz (KHC) which makes up 19.2% of his portfolio
- Wells Fargo (WFC) which makes up 18.1% of his portfolio
- Coca-Cola (KO) which makes up 14.1% of his portfolio
- IBM (IBM) which makes up 8.5% of his portfolio
- American Express (AXP) which makes up 6.6% of his portfolio
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 are shown, including:
- Price-to-earnings ratio
- Dividend history
- Current dividend yield
- Historical growth rate
These metrics 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 – The Bank of New York Melon Corporation (BK)
Dividend Yield: 2.1%
Price-to-Earnings Ratio: 12.0
Years of Steady or Rising Dividends: 7
Percent of Warren Buffett's Portfolio: 0.6%
10 Year Book-Value-Per-Share Growth Rate: 9.8%
The Bank of New York Melon Corporation (hereafter referred to as BK) is a global financial services corporation with a $36 billion market cap. The company operates in 3 segments:
- Investment Management
- Investment Services
The Investment Management segment provides investment management services to institutional and retail investors. It also provides investment management, wealth and estate planning and private banking solutions. The segment generates ~20% of the company’s income.
The Investment Services segment provides global custody and related services, broker-dealer services, global collateral services, corporate trust, depositary receipt and clearing services as well as global payment/working capital solutions to global financial institutions. The segment generates ~75% of the company’s income.
The Other segment primarily includes credit-related activities, leasing operations, corporate treasury activities, global markets and institutional banking services, business exits, M&I expenses and other corporate revenue and expense items. The segment generates ~5% of income for the company.
The Investment Services segment is BK’s largest by far. BK generates the vast majority of its revenue through fees rather than interest income. As a result, the company does not stand to gain from rising interest rates.
BK sees its income fall sharply during market corrections and recessions. The company posted significant losses in 2009 during the Great Recession.
BK cut its dividend during the Great Recession. The company’s dividend payments still have not reached levels reached in 2007.
While the company does struggle during recessions, it can also trade for a premium price-to-earnings ratio during bull markets. This makes BK a stock to purchase during market declines and sell during strong bull markets.
With a price-to-earnings ratio of just 12, now is an opportune time to enter into this investment services business.
19 – American Express (AXP)
Dividend Yield: 2.3%
Price-to-Earnings Ratio: 10.2
Years of Steady or Rising Dividends: 38
Percent of Warren Buffett's Portfolio: 6.6%
10 Year Earnings-Per-Share Growth Rate: 7.0%
American Express is one of Warren Buffett's core holdings. He first purchased the stock in 1964… Over 50 years ago. Now that’s a long-term investment.
American Express is a well known credit provider. The company currently has a market cap of $50 billion. Only Visa (V) and MasterCard (MA) have larger market caps in the credit services industry.
Despite being a well-established business, American Express continues to exhibit solid growth. The company has compounded its earnings-per-share at 7% a year over the last decade.
Share repurchases have helped American Express realize its growth rate over the last decade. The company has repurchased nearly 4% of shares outstanding a year over the last decade.
American Express focuses its credit lending services on those with good credit. As a result, it experiences lower bad credit losses than industry averages.
The company’s stock is down around 40% this year. Costco (COST) [which is another Warren Buffett holding] is cancelling its exclusive card membership agreement with American Express. Additionally, the comapny is being hurt by the stong United States dollar. In the short run, this will impact earnings. In the long run, American Express’ competitive advantage remains intact.
The company appears undervalued at this time. A price-to-earnings ratio of 10.2 is far too low for a high quality credit business.
18 – U.S. Bancorp (USB)
Dividend Yield: 2.7%
Price-to-Earnings Ratio: 11.8
Years of Steady or Rising Dividends: 7
Percent of Warren Buffett's Portfolio: 2.8%
10 Year Book-Value-Per-Share Growth Rate: 8.3%
It is easy to see why Warren Buffett has invested billions 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.
Note: Ffficiency ratio is calculated as expenses before interest expense divided by total revenue.
The image below shows U.S. Bancorp’s industry leading status in these important metrics for fiscal 2015.
U.S. Bancorp is more than 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 around 5.5%. 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 13% a year from U.S. Bancorp.
U.S. Bancorp currently trades at a price-to-earnings ratio of just 11.8. 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: 2.8%
Price-to-Earnings Ratio: 13.7
Years of Steady or Rising Dividends: 25
Percent of Warren Buffett's Portfolio: 0.5%
10 Year Book-Value-Per-Share Growth Rate: 5.7%
M&T Bank Corporation is a bank holding company with ~800 locatons across the East COast.
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