TheStreet.com recently ran an article outlining five companies that Warren Buffett holds in his portfolio that yield 3% or better. I decided to take a look at these five companies, since I love dividend companies, and to some degree I love Warren Buffett. (I like to read what he is doing, but I don’t own any of Berkshire Hathaway’s stock.)
I’ve been writing about dividend stocks for nearly a year, and have written close to a hundred articles. I have devised my own ratings system and put together my top ten companies into what I call my Perfect Dividend Portfolio.
My ratings criteria include factors such as yield, number of years paying and raising dividends, five-year Dividend Growth Rate (DGR), five-year projected Earnings Growth Rate (EGR), total return for the past twelve months, PE, and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.
The first company in Buffett’s portfolio is GlaxoSmithKline plc (ADR) (NYSE:GSK), in the pharmaceuticals industry. The company is currently trading at approximately $51 and yields 4.30%.
GlaxoSmithKline plc (ADR) (NYSE:GSK) clearly has no consistent dividend paying or raising strategy, as its dividends have been up and down every quarter like a roller-coaster. I honestly can’t even evaluate it using my ratings system; it would score somewhere in the 0 to 5 range.
As of Dec. 31, 2012, the company comprised 0.09% of Mr. Buffett’s total holdings. He owns 1.5 million shares, worth $76.5 million at today’s price. While this company does contribute only a small amount to his overall portfolio, it is critical to note that he holds only 41 companies, so each should be considered significant on that basis.
The next company is ConocoPhillips (NYSE:COP). The company is currently trading at approximately $63 and yields 4.20%. The company has returned 19.6% over the past twelve months.
It could have a decent dividend-raising history, but mysteriously, the company froze its dividend in 2012 at the same distribution level as 2011. Just a penny more could have maintained the streak, but management chose not to. What’s even more confusing to me is that the payout ratio is a low 43%, and its five-year DGR is a hefty 10.4%, so a claim to consistently rising dividends could make it extremely attractive to income investors.
Other metrics include analysts’ five-year annual growth estimate (4.1%), the company’s PE (10.1) and its dividend-payout ratio (43%).
As of Dec. 31, 2012, Buffett owned 24.1 million shares worth $1.5 billion, and comprising 1.9% of his total holdings.
ConocoPhillips (NYSE:COP) scores a 16 on my ratings system, which merits further watching. Part of my disappointment is the freezing of the dividend in 2012, but the EGR is also quite low.
The next company is Gannett Co., Inc. (NYSE:GCI), the media company. The company is currently trading at approximately $22 per share and yields 3.60%. It has raised dividends for only two years, as the company was forced to slash its dividend in 2009. Its five-year DGR is 29%, because now that the economy is doing better, management has increased the dividend to nearly pre-recession levels.
Other metrics include analysts’ five-year annual growth estimate (5.6%), the company’s PE (11.2), and its dividend-payout ratio (41%).
As of Dec. 31, 2012, Buffett owned 1.7 million shares worth $37.4 million, comprising 0.04% of his total holdings
Gannett Co., Inc. (NYSE:GCI) actually scores an 18 on my ratings system, and but its two-year history would keep it out of my portfolio. For someone who is not as rigid in their criteria, it would make an excellent addition to a dividend portfolio.
The next company is General Electric Company (NYSE:GE), which is currently trading at approximately $23 and yields 3.30%. It has raised dividends for only two years, as it also was forced to cut its dividend in 2009. Unlike Gannett Co., Inc. (NYSE:GCI), however, General Electric Company (NYSE:GE)’s management has not aggressively increased the dividend, so its five-year DGR is still negative. The company has returned 24.3% over the past twelve months.
Other metrics include analysts’ five-year annual growth estimate (11.3%), the company’s PE (17), and its dividend-payout ratio (54%).
As of Dec. 31, 2012, Buffett owned only 600,000 shares worth $13.8 million, comprising 0.02% of his total holdings. He has lightened up his holdings significantly, from the 7.7 million shares he owned in 1Q 2012.
General Electric Company (NYSE:GE) scores a 13 on my ratings system, and only two of the 7 metrics are above average.
The last company on Mr. Buffett’s list is General Dynamics Corporation (NYSE:GD), which is currently trading at approximately $76 per share and yields 3%. It has raised dividends for 18 years, its five-year DGR is 11.4%, and the company has returned 16.5% over the past twelve months.
Other metrics include analysts’ five-year annual growth estimate (6.4%), the company’s PE (11), and its dividend-payout ratio (37%).
As of Dec. 31, 2012, Buffett owned 3.9 million shares worth $296 million at today’s price, comprising 0.36% of his total holdings.
General Dynamics Corporation (NYSE:GD) also scores an 18 on my ratings system, and I have considered it very closely in the past for inclusion in my portfolio. I am not adding companies at this time, but I would think very seriously about this one if I were.
I’ve created a chart to show how each company scores on each of my criteria.
| Years | Yield | DGR | EGR | Payout | Total Return | PE | TOTAL | |
|---|---|---|---|---|---|---|---|---|
| COP | 0 | 4 | 3 | 0 | 3 | 3 | 3 | 16 |
| GCI | 0 | 3 | 4 | 1 | 3 | 4 | 3 | 18 |
| GE | 0 | 2 | 0 | 3 | 2 | 4 | 2 | 13 |
| GD | 2 | 2 | 3 | 1 | 4 | 3 | 3 | 18 |
I like two of Mr. Buffett’s companies, but I like my ten better.
The article Top 5 Dividend Companies of Warren Buffett originally appeared on Fool.com is written by Karin Hernandez.
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