The Procter & Gamble Company (NYSE:PG) was actually one of Berkshire’s five largest positions by market value as the holding company reported owning nearly 53 million shares of the personal products company behind brands such as Gillette, Bounty, Duracell, and Olay. At current prices the dividend yield is 3.4%, and Procter & Gamble can also boast a low beta of 0.3 to appeal to defensive investors. However, in its most recent quarter (the first of its fiscal year), revenue and earnings were both down compared to the same period in the previous year. It trades at 19 times trailing earnings. We would compare it to Johnson & Johnson (NYSE:JNJ), another personal products company with roughly the same market capitalization and a similar dividend yield. Johnson & Johnson’s trailing P/E multiple is a bit higher, but thanks to a more optimistic perspective from the Street it trades at a discount to Procter & Gamble when looking at forward earnings estimates. We don’t see its business doing that much better in recent quarters and so we think that Procter & Gamble is a better buy for the industry- though that company’s valuation also seems like it might be a bit high.
Berkshire owned a little over 24 million shares of oil major ConocoPhillips (NYSE:COP). ConocoPhillips’s current dividend yield is 4.8%, and the company has been very good about increasing its dividend payments or at least holding them constant. There’s commodity risk here, which has pulled the stock price down over the last year and caused earnings to decline by 31% in the third quarter of 2012 versus a year earlier. Still, that yield should prove attractive to income investors and as at many other oil companies the trailing and forward P/E multiples are less than 10. It therefore deserves consideration as a value stock as well. First Eagle Investment Management reported owning 8.7 million shares at the end of September (find more stocks that First Eagle owned).
Buffett held his company’s stake in General Dynamics Corporation (NYSE:GD) constant at about 3.9 million shares. The company focuses on manufacturing aircraft and combat vehicles and systems, and pays a yield of 3.3%. The federal government’s plans to reduce military spending have held the stock price about flat for the last year while the S&P 500 has risen 17%. With the business itself actually holding steady, this has placed General Dynamics at 9 times earnings on both a trailing and a forward basis. So while the yield is not spectacular, it is high and comes attached to a fairly cheap company. We think that both value and income investors could be looking for opportunities in aerospace & defense.
Sanofi SA (NYSE:SNY), which Berkshire had owned 4.1 million shares of at the end of September, rounds out our list of Buffett dividend picks with a 4% dividend yield. The $115 billion market cap drug manufacturer had its net income for last quarter come in 23% below its levels from Q3 2011. Its trailing P/E is 15, with Wall Street analysts expecting much better earnings numbers next year (the stock price is only 7 times consensus for 2013). We might want to look at the company in more depth before evaluating it as a value investment.
