Billionaire Warren Buffett’s Top Dividend Picks

When it comes to value investing and even investing in general, there is no denying the fact that almost no one can match the skills and expertise of Warren Buffett. However, most investors pay attention only to the top stock picks of Berkshire Hathaway and ignore the fact that apart from capital gains the firm generates a significant amount of its income from dividends. Taking that into account, we at Insider Monkey have compiled a list of the top five dividend stocks that the firm held at the end of September based on its latest 13F filing.

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 48.7% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

#5 Wal-Mart Stores, Inc. (NYSE:WMT)

– Shares Owned by Berkshire Hathaway (as of September 30): 56.18 Million

– Value of Holding (as of September 30): $3.64 Billion

It seems the continuous underperformance of Wal-Mart Stores, Inc. (NYSE:WMT)’s stock this year was the chief reason why Berkshire Hathaway reduced its long-time held stake in the company (by 7%) during the third quarter. However, while on one hand the decline in the stock has caused a lot of anguish among investors, it has also made the $0.49 quarter dividend paid by Wal-Mart Stores, Inc. (NYSE:WMT) translate into an attractive annual dividend yield of 3.22% at current prices. Recently the company launched its own mobile payment platform ‘Walmart Pay’, which experts believe can save the company billions of dollars in transaction fees over the years if it manages to gain the necessary traction. Billionaire David E. Shaw‘s firm, D.E. Shaw, was another hedge fund that reduced its stake in Wal-Mart Stores, Inc. during third quarter (by 26%).

#4 Procter & Gamble Co (NYSE:PG)

– Shares Owned by Berkshire Hathaway (as of September 30): 52.8 Million

– Value of Holding (as of September 30): $3.8 Billion

Shares of Procter & Gamble Co (NYSE:PG) tumbled during the third quarter, but have recovered since then and now trade with year-to-date losses of 12.41%. The consumer goods behemoth has a track record of consistently hiking its dividend every year for the past 59 years and currently boasts of an annual dividend yield of 3.32%. Procter & Gamble Co (NYSE:PG) is scheduled to report its fiscal 2016 second quarter numbers in late-January. Analysts expect the company to report EPS of $0.98 on revenue of $16.97 billion for the quarter, while for the same quarter last year the company had reported EPS of $1.06 on revenue of $20.20 billion. Donald Yacktman‘s Yacktman Asset Management reduced its stake in the company by 3% to 27.8 million shares during the July-September period.

#3 International Business Machines Corp. (NYSE:IBM)

– Shares Owned by Berkshire Hathaway (as of September 30): 81 Million

– Value of Holding (as of September 30): $11.75 Billion

After continuously increasing its stake in International Business Machines Corp. (NYSE:IBM) for six quarters Berkshire Hathaway didn’t make any changes to its stake in the company during the second quarter, but inched up its stake by 1% during the third quarter. Last month, Berkshire Hathaway announced that it has lost $2 billion on its investment in the company. However, the firm still has high conviction on the stock and believes that the company will successfully be able to transform itself from a hardware-oriented company to a cloud-focused one. Amid an over 10% decline of International Business Machines Corp. (NYSE:IBM)’s stock during the third quarter, four more funds covered by us became bullish on the stock. Among the funds that found the company’s $1.3 quarterly dividend tempting enough to initiate a stake was Bruce Berkowitz‘s Fairholme (Fairx), which bought 754,400 shares during the third quarter.

#2 The Coca-Cola Co (NYSE:KO)

– Shares Owned by Berkshire Hathaway (as of September 30): 400 Million

– Value of Holding (as of September 30): $16 Billion

The Coca-Cola Co (NYSE:KO)’s stock has had a spectacular rise since September and now trades up by 3.13% year-to-date. In spite of this rise, the $0.33 per share quarterly dividend the company pays translates into an attractive annual dividend yield of over 3% currently. Although the forward price to earnings multiple of 21.03 the stock currently trades at is above industry average, several analysts believe that The Coca-Cola Co (NYSE:KO) deserves to trade at this premium due to the value of its brands and its dominance over the beverage market. On December 4, analysts at Tigress Financial downgraded the stock to ‘Neutral’ from ‘Buy’. Clint Carlson‘s Carlson Capital increased its stake in The Coca-Cola Co by 40% to over 2.5 million shares during the third quarter.

#1 Kraft Heinz Co (NASDAQ:KHC)

– Shares Owned by Berkshire Hathaway (as of September 30): 325.6 Million

– Value of Holding (as of September 30): $23 Billion

Berkshire Hathaway saw a windfall of $4.4 billion in the third quarter after the merger of Heinz and Kraft Foods Group was completed and the firm emerged as the largest shareholder of the combined company Kraft Heinz Co (NASDAQ:KHC) among the hedge funds covered by Insider Monkey, at the end of September. Shares of Kraft Heinz Co (NASDAQ:KHC) have traded in the $70-$80 range ever since the merger, which has helped it in maintaining its annual dividend yield to over 3%. On November 5, the company reported its third-quarter results, declaring EPS of $0.44 on revenue of $6.12 billion versus analysts’ estimate of EPS of $0.63 on revenue of $4.70 billion. Trailing Berkshire, Dan Loeb‘s Third point was the second-largest shareholder of Kraft Heinz Co among the funds tracked by us with an ownership of 8.25 million shares of the company, at the end of September.

Disclosure: none