In this article, we will take a look at some of the best dividend stocks according to Warren Buffett.
Warren Buffett is a widely recognized name in the investment world, known for his influence and expertise. His strategies are closely followed by many aspiring investors, reflecting the high regard in which he is held. What sets Buffett apart is his steadfast commitment to the investment principles that have guided him throughout his career, with a strong focus on value investing. In addition to value strategy, Buffett is also inclined toward dividend stocks.
Dividend stocks have long been a cornerstone of Berkshire Hathaway’s portfolio, accounting for over 90% of its holdings. Buffett’s preference for dividend-paying stocks has frequently been discussed in the media, especially given that Berkshire itself does not distribute dividends. He is recognized for his disciplined approach, focusing on acquiring stocks with the intention of holding them for extended periods—often spanning years or even decades. This long-term outlook enables him to take advantage of compounding returns while staying resilient through market fluctuations. His strategy has delivered strong results, with the portfolio overseen by Buffett and his team expected to generate approximately $6 billion in annual dividend income. Notably, just seven companies are anticipated to generate $4.5 billion in annual dividends for his company.
Read also: 10 Safest Dividend Stocks in the UK
Buffett’s commitment to holding stocks for the long term is often seen as a crucial element of his investment success. Peter Kunhardt, a director of the HBO documentary “Becoming Warren Buffett”, made the following comment in his 2017 interview:
“You don’t have to trade things all the time; you can sit on things, too. You don’t have to make many decisions in life to make a lot of money.”
Buffett’s dividend investing strategy isn’t centered on chasing the highest yields. Instead, he focuses on finding strong, well-managed companies that can sustain and grow their dividends over time. He favors steady, reliable businesses with moderate yields over riskier stocks with higher payouts. Given Buffett’s track record, it’s clear that his approach is well-founded, as dividend stocks have played a crucial role in overall market returns. Between 1993 and the end of 2022, the broader market rose by 777%, but when dividends were included, the total return exceeded 1,400%. This highlights the significant contribution of dividends, accounting for more than 20% of the market’s overall gains during that period.
Examining the performance of dividend stocks over earlier periods reveals that they have played a substantial role in overall market returns. Dividends have historically been a major contributor to the total returns of US stocks, making up nearly one-third of overall equity gains since 1926. From 1980 to 2019, a period characterized by declining interest rates, dividends accounted for 75% of the broader market’s returns. In such environments, dividends become even more valuable, providing consistent income when bond yields are lower. Companies that start paying dividends tend to maintain them and often increase their payouts over time. In addition, issuing dividends can make a stock more attractive to investors, potentially driving up its market value.
By the close of Q3 2024, most companies in Buffett’s portfolio had a strong track record of paying dividends and steadily increasing them over time. Given this, we will take a look at some of the best dividend stocks in Warren Buffett’s portfolio.
Our Methodology:
For this article, we analyzed Berkshire Hathaway’s 13F portfolio as of the third quarter of 2024 and identified dividend stocks. From that group, we picked 13 stocks with the highest number of hedge fund investors, tracked by Insider Money as of Q3 2024. The stocks are ranked in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
13. The Kraft Heinz Company (NASDAQ:KHC)
Number of Hedge Fund Holders: 38
The Kraft Heinz Company (NASDAQ:KHC) is an Illinois-based multinational food company that specializes in a wide range of snacks and beverages. The company was formed through the merger of Kraft and Heinz with the goal of improving profitability through cost reductions. However, the integration did not proceed as planned, leading to changes in leadership. In response, the company refocused its efforts on a core portfolio of stronger-performing brands. Despite past challenges, Kraft Heinz has been making steady progress, particularly in strengthening its financial position. Since hitting its peak debt levels in 2020, the company has significantly reduced its leverage, showcasing its ability to navigate current obstacles and reposition itself for long-term growth.
In the past 12 months, The Kraft Heinz Company (NASDAQ:KHC) has fallen by over 20%. Despite facing ongoing challenges, income-focused investors may take comfort in the company’s strong cash position. In the most recent quarter, the company showcased solid cash generation, with annual operating cash flow increasing by 6.7% to $2.8 billion compared to the previous year. Free cash flow also experienced a 9.7% rise, reaching $2 billion. In addition, the company returned $1.5 billion to shareholders through dividends over the first nine months of the year. Its quarterly dividend sits at $0.40 per share for a dividend yield of 5.52%, as of February 10.
At the end of Q3 2024, 38 hedge funds tracked by Insider Monkey held stakes in The Kraft Heinz Company (NASDAQ:KHC), compared with 43 in the previous quarter. The consolidated value of these stakes is more than $12 billion.
12. The Kroger Co. (NYSE:KR)
Number of Hedge Fund Holders: 39
The Kroger Co. (NYSE:KR) is an American retail company that operates supermarkets and multi-department stores throughout the US. The company reported strong sales for the third quarter of 2024, driven by solid performance in its pharmacy and digital segments, highlighting the adaptability and strength of its business model. During the quarter, the company grew its customer base by offering great value through competitive pricing, targeted promotions, and high-quality private-label products, all within a seamless shopping experience. The company’s revenue for the quarter reached $33.63 billion, a slight decrease of 0.95% compared to the same period last year.
On October 4, 2024, The Kroger Co. (NYSE:KR) completed the sale of its specialty pharmacy business for $464 million. This transaction resulted in a $340 million decrease in third-quarter sales compared to the same period last year, with annual sales anticipated to drop by around $3 billion moving forward. Since the specialty pharmacy segment had low-profit margins, the sale boosted the company’s gross margin, though it also led to an increase in operating, general, and administrative expenses as a percentage of sales.
The Kroger Co. (NYSE:KR) declared a quarterly dividend of $0.32 per share on January 31, which was in line with its previous dividend. Overall, the company has raised its payouts for 18 consecutive years, which makes KR one of the best dividend stocks on our list. The stock supports a dividend yield of 1.96%, as of February 10.
11. Chubb Limited (NYSE:CB)
Number of Hedge Fund Holders: 51
Chubb Limited (NYSE:CB) is an insurance company that offers a wide range of insurance products, including property and casualty, life insurance, and reinsurance, with operations across 54 countries. In the fourth quarter of 2024, the company reported net premiums of over $12 billion, which showed a 4% growth from the same period last year. Its primary Property & Casualty (P&C) segment, which represents about 84% of net premiums written in 2024, experienced steady growth with a 7.7% increase compared to the previous year. Net income for the P&C segment reached $5.8 billion, and the combined ratio remained strong at 86.6%, showing a slight improvement from the prior year. The consistent growth of this segment highlights Chubb’s solid foundation in its core business.
Despite its strong performance, Chubb Limited (NYSE:CB) is experiencing a setback due to recent wildfire losses, which are expected to impact free cash flow by $1.5 billion. However, considering the company’s past ability to handle significant losses, such as those from Hurricane Ian and Hurricane Milton, Chubb is well-equipped to manage this challenge.
In Q4 2024, Chubb Limited (NYSE:CB) reported an operating cash flow of $4.57 billion. The company’s cash position remained strong as it paid nearly $1.1 billion to shareholders through dividends and share repurchases. It currently offers a quarterly dividend of $0.91 per share and has a dividend yield of 1.37%, as of February 10. With a 31-year streak of dividend growth under its belt, CB is one of the best dividend stocks to invest in.
