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.
4. Bank of America Corporation (NYSE:BAC)
Short % of Shares Outstanding: 0.90%
An American multinational investment bank and financial services company, Bank of America Corporation (NYSE:BAC) offers a wide range of related services to its consumers. The company’s ability to weather numerous challenging periods while still serving its customers speaks volumes. As the leader in US retail deposits, it has earned strong customer trust. Since the start of 2024, the stock has gained over 14%, and in the past 12 months, the stock has delivered a 34% return to shareholders.
Bank of America Corporation (NYSE:BAC) consistently remains profitable, a fact that can often be overlooked. Over the past ten years, its average net profit margin has been 25%, enabling the business to regularly pay dividends. In the second quarter of 2024, the company reported revenue of $25.4 billion, which showed a 1% growth from the same period last year. The company’s strong and profitable Consumer Banking business is supported by the growth and success of its Global Markets, Global Banking, and Wealth Management divisions. The Global Markets segment achieved its ninth consecutive quarter of year-over-year revenue growth in sales and trading, delivering double-digit returns. Analysts also believe that BAC is in a favorable position to grow. This was also highlighted by ClearBridge Investments in its Q1 2024 investor letter:
“We added several new positions during the quarter. Our largest new addition was Bank of America Corporation (NYSE:BAC), one of the world’s leading financial institutions, serving some 66 million consumer and small business clients across the U.S. as well as large corporations, financial institutions and governments globally. We believe that the interest rate pressure that Bank of America faced in early 2023 has subsided, and risks surrounding deposit outflows have abated, which should allow the company to improve its book value and capital growth as well as benefit from a rebound of capital markets activity.”
Bank of America Corporation (NYSE:BAC) is also a strong dividend payer, distributing regular dividends to shareholders for the past 26 years. In the most recent quarter, the company paid $2 billion to shareholders through dividends. Its quarterly dividend comes in at $0.26 per share for a dividend yield of 2.7%, as of September 15.
Of the 912 hedge funds tracked by Insider Monkey at the end of Q2 2024, 92 funds invested in Bank of America Corporation (NYSE:BAC), up from 82 a quarter earlier. The stakes owned by these hedge funds have a total value of more than $48 billion.
3. Apple Inc. (NASDAQ:AAPL)
Short % of Shares Outstanding: 0.89%
In the second quarter of 2024, short sellers faced significant losses, losing billions of dollars by betting against major, well-known stocks like Apple Inc. (NASDAQ:AAPL). It was among the three least profitable short positions during this period, as its stock price jumped by 23% in Q2 2024. According to analysts, weak iPhone sales and regulatory challenges in the EU and the USA may be affecting sentiment, but the influence of market perceptions on interest rate trends should not be overlooked either.
In fiscal Q3 2024, Apple Inc. (NASDAQ:AAPL) reported a 14.5% QoQ decline in its iPhone sales at over $39.2 billion. The company’s overall revenue for the quarter came in at $85.7 billion, which saw a 5% hike from the same period last year. During the quarter, the company was pleased to reveal significant updates to its software platforms at the Worldwide Developers Conference. Among these updates was Apple Intelligence, a revolutionary personal intelligence system that integrates advanced, private generative AI models into iPhone, iPad, and Mac devices. Despite its declining iPhone sales, analysts are still optimistic about the company. Baron Funds also discussed this in its Q2 2024 investor letter. Here is what the firm has to say:
“The Fund’s chief relative detractor was Apple Inc. (NASDAQ:AAPL), even though it was a meaningful contributor to absolute performance, as we added to our Apple position significantly during the period. We bought Apple well, but in 20/20 hindsight we didn’t buy enough. Because Apple has an oversized weight in the Benchmark (its average weight was 15.7% for the period), when Apple’s stock outperforms (it appreciated 23.0%), it has generally been a headwind to relative performance. Our Apple underweight accounted for 33% of our relative underperformance for the period.
This quarter we increased the size of our position in Apple Inc., a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago. The increasing services mix has led to healthy operating margin improvement, providing more free cash flow for Apple to reinvest in the business and to distribute to shareholders. Throughout its 48-year history, Apple has successfully navigated and capitalized on major technological shifts, from PCs to mobile to cloud computing. We believe the company’s leading brand and device ecosystem position it to do equally well in the AI age, and this was the driver of our decision to re-invest. “Apple Intelligence” – the AI strategy unveiled at Apple’s recent Worldwide Developer Conference – leverages on-device AI and integrations with tools like ChatGPT to enhance user experiences across its ecosystem. The AI suite enables users to create new images, summarize and generate text, and use Siri to perform actions across their mobile applications, all while maintaining user privacy and security. We think Apple Intelligence can drive accelerated product upgrade cycles and higher demand for Apple services. The combination of growth re-acceleration, increasing services contribution, and thoughtful capital allocation should continue driving long-term shareholder value.”
Apple Inc. (NASDAQ:AAPL) also reported a strong cash position. The company generated over $29 billion in operating cash flow and returned $32 billion to shareholders through dividends and share repurchases during the quarter. Moreover, the company has been growing its dividends consistently for the past 12 years, which makes AAPL one of the best Warren Buffett dividend stocks. Its quarterly dividend currently sits at $0.25 per share for a dividend yield of 0.45%, as of September 15.
Apple Inc. (NASDAQ:AAPL) garnered a lot of attention from elite money managers during the second quarter of 2024. Insider Monkey’s database of Q2 2024 indicated that 184 hedge funds held stakes in the company, growing from 150 in the previous quarter. The consolidated value of these stakes is over $124 billion.
2. Moody’s Corporation (NYSE:MCO)
Short % of Shares Outstanding: 0.85%
An American financial services company, Moody’s Corporation (NYSE:MCO) ranks second on our list of the best Warren Buffett dividend stocks according to short sellers. The company offers credit ratings and analytical solutions to investors and businesses. Since the start of 2024, the stock has surged by nearly 25% and its 12-month returns came in at roughly 40%. One of the main reasons for the stock’s outperformance is that its risk analysis and credit ratings business continue to perform well.
In the second quarter of 2024, Moody’s Corporation (NYSE:MCO) reported robust earnings, thanks to the success of its top-rated ratings franchise. It achieved revenue of $1.8 billion, reflecting a 21% increase compared to the same period last year. This double-digit revenue growth bolstered product development and innovation. In addition, the company established several promising strategic partnerships with leading industry firms to broaden the availability and impact of its data and insights.
Moody’s Corporation (NYSE:MCO) is a strong company from a dividend point of view. The company’s strong cash reserves are sufficient to sustain dividend payments for many years to come. In the first six months of 2024, it reported an operating cash flow of over $1.4 billion, up from $1.2 billion in the same period last year. The free cash flow also jumped to $1.3 billion, from $1.08 billion in the prior-year period. The company’s dividend growth streak spans over 14 years, which makes MCO one of the best Warren Buffett dividend stocks. It offers a per-share dividend of $0.85 every quarter and the stock has a dividend yield of 0.71%, as of September 15.
Moody’s Corporation (NYSE:MCO) was included in 59 hedge fund portfolios at the end of Q2 2024, compared with 60 in the previous quarter, according to Insider Monkey’s database. The stakes owned by these hedge funds are collectively valued at nearly $21 billion. TCI Fund Management was one of the company’s leading stakeholders in Q2.
1. Mastercard Incorporated (NYSE:MA)
Short % of Shares Outstanding: 0.64%
Mastercard Incorporated (NYSE:MA) is an American credit card company that offers payment card services to millions of customers around the world. The company continues to see steady growth in its global card numbers. By the end of Q2 2024, its partners had issued 3.4 billion cards under its brands, including Maestro, which is being gradually discontinued. This marks an increase of roughly 200 million new cards compared to the 3.2 billion total at the same time in 2023. The stock has delivered a 17% return to shareholders year-to-date.
Mastercard Incorporated (NYSE:MA) remains an industry leader, consistently proving its strength through its earnings reports. In the second quarter of 2024, it achieved double-digit growth in both net revenue and earnings. This success was driven by steady consumer spending, a 17% rise in cross-border volume, and high demand for its value-added services and solutions, with net revenue increasing by 18%, or 19% when adjusted for currency fluctuations. These results underscore the unique value created by the synergy between payments and services, further accelerating the shift toward digital solutions.
Mastercard Incorporated (NYSE:MA) has consistently upheld its commitment to fulfilling its obligations to shareholders. In the most recent quarter, the company paid $615 million to shareholders in dividends. Moreover, it has been rewarding shareholders with growing dividends for the past 11 consecutive years. The company offers a quarterly dividend of $0.66 per share and has a dividend yield of 0.54%, as of September 15.
As of the close of Q2 2024, 142 hedge funds in Insider Monkey’s database held stakes in Mastercard Incorporated (NYSE:MA), up from 148 in the preceding quarter. The consolidated value of these stakes is over $15.3 billion.
Overall, Mastercard Incorporated (NYSE:MA) ranks first on our list. While we acknowledge the potential for MA to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
