In this article, we will take a look at the best Warren Buffett dividend stocks according to short sellers.
Although the financial world is often seen as serious and analytical, short selling introduces an element of excitement and complexity to market dynamics. Short selling is a strategy where investors borrow shares of a stock, anticipating that the market price will drop by the time they need to purchase the shares to return them. While many short sellers have scaled back since the meme stock frenzy began, the strategy of betting against stocks remains in practice. Short sellers saw strong gains in the second quarter of this year, successfully betting against stocks despite the broader market’s upward trend. Data from S3 Partners LLC showed they earned $10 billion in paper profits during the quarter. These gains, driven by sectors like industrials, healthcare, and financials, helped offset a $15.7 billion mark-to-market loss in the technology sector.
The fact that short sellers were able to profit while the market was rising suggests that investors are concentrating on a handful of large-cap tech stocks amid an uncertain economic environment, leaving vulnerabilities in other sectors. During the quarter ending June 28, the broader market gained roughly 4%. Meanwhile, the tech-focused Nasdaq 100 Index saw a 7.8% gain over the same period.
Also read: 10 Worst Booming Stocks to Buy According to Short Sellers
It’s clear that short sellers capitalize on overlooked or troubled areas of the market. Last year, the turmoil in regional banks attracted short sellers, who stirred controversy by examining lenders’ balance sheets for vulnerabilities linked to rising interest rates and betting against their stocks. In 2023, while the broader market rallied, this sector became a key area of success for these traders. The volatility that affected regional bank stocks earlier this year again generated substantial paper profits for short sellers, echoing the gains they made during last year’s upheaval in the sector. Now analysts are viewing short sellers in a completely new perspective. Carson Block, the founder of Muddy Waters Research, is convinced that markets need short sellers more than ever. However, he notes that a persistent stock rally and new regulatory challenges are creating difficulties for his bearish colleagues, who are struggling to secure capital. Here are some comments from the investor:
“It’s easy to demonize short sellers as part of a populist message and somehow call us the suits. The market needs short sellers more than ever given the amount of games that are being played, but if the long-side doesn’t care, this can continue — until it doesn’t.”
Alongside Block, numerous respected investors and experts have emphasized that short selling plays a crucial role in public markets. It helps enhance price accuracy, ensures better capital allocation, prevents financial bubbles, and uncovers fraud. In 2006, during Berkshire Hathaway‘s annual shareholder meeting, Warren Buffett highlighted that financially strong companies could benefit from short sellers, as they eventually have to buy back the stock. He believes short sellers often uncover wrongdoing or suspicious activities. Buffett remarked that there is nothing inherently wrong with short selling, noting that in many cases where there has been significant short interest, the companies involved were later exposed as fraudulent or engaging in questionable practices. With this, we will take a look at some of the best Warren Buffett dividend stocks according to short sellers.
Our Methodology:
For this list, we first scanned Berkshire Hathaway’s 13F portfolio as of Q2 2024 and identified dividend stocks from the list. From that list, we shortlisted dividend companies with the lowest percentage of shares outstanding that were sold short as of September 15 and ranked them in descending order of the stocks’ short interest.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. 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).
7. Chubb Limited (NYSE:CB)
Short % of Shares Outstanding: 1.38%
Chubb Limited (NYSE:CB) is an American Swiss insurance company that offers a wide range of related products and services to its consumers. The company is attracting interest from investors because, like dividend-paying stocks, insurance firms generally don’t promise quick, large-scale returns. However, they are reliable businesses that steadily grow over time thanks to their role in risk management. Chubb Limited focuses on building tailored customer relationships through independent agents, offering coverage options that are often hard to find with other insurers. Since the start of 2024, the stock has surged by over 27%, outperforming the broader market, which gained nearly 19% during this period.
In the second quarter of 2024, Chubb Limited (NYSE:CB) reported net premiums of over $11.7 billion, which showed a 10.3% growth from the same period last year. The company’s cash position was also strong as it generated $4.08 billion in operating cash flow. Its cash position allowed it to return $369 million to shareholders through dividends during the quarter.
Chubb Limited (NYSE:CB) offers a quarterly dividend of $0.91 per share, having raised it by 6% in May this year. This marked the company’s 31st consecutive year of dividend growth, which makes CB one of the best Warren Buffett dividend stocks. The stock has a dividend yield of 1.26%, as of September 15.
At the end of Q2 2024, 46 hedge funds tracked by Insider Monkey reported having stakes in Chubb Limited (NYSE:CB), down from 53 in the previous quarter. These stakes have a total value of over $8 billion. With over 27 million shares, Berkshire Hathaway was the company’s leading stakeholder in Q2.
6. American Express Company (NYSE:AXP)
Short % of Shares Outstanding: 1.31%
American Express Company (NYSE:AXP) is a New York-based bank holding company that offers payment card services to its consumers. The company is popular among investors because of its strong and consistent performance over the years. Since late 2021, the company has significantly grown its operations, raising revenues by nearly 50% and increasing Card Member spending by close to 40%. It has also issued around 23 million new cards and extended its reach to more than 30 million merchant locations. The stock has surged by nearly 38% in 2024 so far, despite investors’ worries about slowing consumer spending and rising charge-offs and delinquencies in the banking sector. The company benefits from strong network effects.
In the second quarter of 2024, American Express Company (NYSE:AXP) reported revenue of $16.3 billion, which showed an 8.5% growth from the same period last year. The growth was mainly driven by higher net interest income, increased Card Member spending, and continued strong growth in card fees. The company maintained momentum across its operations, with billings showing steady growth at 6%, 3.3 million new card acquisitions, and double-digit growth in card fee revenues for the 24th consecutive quarter. In addition, its credit performance remained excellent, continuing to lead the industry. Artisan Partners highlighted the company’s strong performance in its Q1 2024 investor letter. Here is what the firm said about American Express Company (NYSE:AXP):
“American Express Company (NYSE:AXP) shares rose 22% this quarter. This is an interesting case study given our earlier discussion about inflation. American Express operates one of the largest credit card networks in the world. Its revenue is largely a function of a fee rate applied to the dollar value of goods and services that are transacted through its network. That dollar value is, of course, nominal. As inflation pushes up the value of those goods and services as it has for the past few years, American Express will capture that value through its fee structure. The past few years inflation has clearly been a benefit. Aside from its inherent inflation protection, the business is a very strong one. Payments continue to shift toward electronic forms, benefiting American Express. It also has a strong brand that attracts loyal and highly profitable customers that are the envy of the industry. Recent results have been strong with revenues moving nicely ahead of GDP.”
American Express Company (NYSE:AXP) offers a quarterly dividend of $0.70 per share and has a dividend yield of 1.08%, as of September 15. The company has raised its payouts tice this year. Moreover, in the most recent quarter, it paid $15 million to shareholders through dividends, which makes AXP one of the best Warren Buffett dividend stocks according to short sellers.
As of the close of Q2 2024, 68 hedge funds in Insider Monkey’s database owned stakes in American Express Company (NYSE:AXP), up from 66 in the previous quarter. These stakes have a consolidated value of over $38.4 billion.
5. The Coca-Cola Company (NYSE:KO)
Short % of Shares Outstanding: 0.91%
The Coca-Cola Company (NYSE:KO) ranks fifth on our list of the best Warren Buffett dividend stocks according to short sellers. The stock is delivering strong returns this year, gaining by over 19%. It also hit its all-time high on September 3, with the share price reaching around $73. Morgan Stanley expects that the company will maintain this performance. Analyst Dara Mohsenian emphasized that they still favor Coca-Cola, especially compared to peers facing slowing organic sales growth, noting that the company’s fundamentals are increasingly setting it apart. Coca-Cola is expected to deliver strong, above-consensus, and above-peer long-term organic sales growth, with its strong international trends and higher global exposure benefiting the Atlanta-based company. The firm considered KO its top pick and maintained an Overweight rating on the stock.
The Coca-Cola Company (NYSE:KO) is one of the strongest dividend payers in the US market. We will get to the dividend part later, but what truly sets it apart is its robust cash flow. In the second quarter of 2024, the company reported an operating cash flow of $4.1 billion and its free cash flow came in at $3.3 billion. For FY24, it expects to generate a free cash flow of $9.2 billion.
The Coca-Cola Company (NYSE:KO), one of the best Warren Buffett dividend stocks, pays a quarterly dividend of $0.485 per share. The company has rewarded shareholders with 62 consecutive years of dividend growth. As of September 15, the stock supports a dividend yield of 2.72%.
The number of hedge funds tracked by Insider Monkey owning stakes in The Coca-Cola Company (NYSE:KO) grew to 68 in Q2 2024, from 62 in the preceding quarter. These stakes have a total value of nearly $32 billion. In addition to Berkshire Hathaway, GQG Partners was also one of the company’s leading stakeholders in Q2.
