We recently compiled a list of the Warren Buffett Dividend Stocks by Sectors and Industries. In this article, we are going to take a look at where Bank of America Corporation (NYSE:BAC) stands against the other Warren Buffet-approved dividend stocks.
Warren Buffett is a well-known figure in the investment community, and his reputation requires no introduction. He is one of those rare investors whose strategies are closely emulated by countless newcomers to the field. This widespread admiration stems from the fact that Buffett operates in a class of his own. He remains committed to the investment principles he has relied on throughout his career, particularly value investing. The Oracle of Omaha’s lack of enthusiasm for the current AI trend highlights his steadfast dedication to the strategies that have guided his investment approach for decades.
At the Berkshire annual shareholder meeting in May, Buffett was asked about AI’s potential impact on traditional industries. He responded by acknowledging that he was not knowledgeable about the technology but emphasized that this lack of understanding did not imply he dismissed its existence, importance, or significance in any way. That said, Buffett is also enthusiastic about several other strategies beyond value investing.
Also read: Warren Buffett Disciple Guy Spier’s 10 High Conviction Stock Picks
Dividend stocks have been a staple in Berkshire’s portfolio for a long time, with nearly 93% of the holdings focused on them. The media has often highlighted Buffett’s affinity for dividend stocks, particularly because Berkshire Hathaway, his own company, does not pay a dividend. His approach has proven successful, as the investment portfolio managed by Buffett and his team is projected to generate around $6 billion in annual dividend income. Remarkably, $4.36 billion of that income from common and preferred stock dividends comes from just five companies.
Buffett’s approach to dividend investing isn’t driven by chasing the highest yield. Instead, he prioritizes identifying outstanding companies that can maintain and grow their dividends over the long term. He prefers a moderate yield from a stable, successful company over a higher yield from a less reliable and weaker one. If Warren Buffett has a preference for dividends, it’s clear he’s on the right track, given how significantly these stocks have contributed to overall market returns. His love for dividend stocks reflects the significant role these equities have played in contributing to the market’s overall returns over the years. Between 1993 and the end of 2022, the S&P 500 grew by 777%. However, when dividends were factored in, the S&P 500 saw an increase of over 1,400% during the same period. This indicates that dividends accounted for more than 20% of the market’s total return during those years.
Buffett carefully monitors the sectors and industries he invests in, which is a core aspect of his investment strategy. By the end of Q2 2024, the finance sector was the largest portion of his portfolio, followed closely by technology, with substantial investments also in basic materials and consumer goods. This article will explore some of the best Warren Buffett dividend stock selections across these different sectors and industries.
Our Methodology:
For this article, we analyzed Berkshire Hathaway’s 13F portfolio as of the second quarter of 2024 and picked dividend stocks from the portfolio. We mentioned the sectors and industries these stocks belong to and ranked them in ascending order of the hedge fund’s stake in them during Q2 2024.
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).
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Bank of America Corporation (NYSE:BAC)
Berkshire Hathaway’s Stake Value: $41,076,524,279
Sector: Financials
Industry: Banks—Diversified
Bank of America Corporation (NYSE:BAC) ranks second on our list of the best Warren Buffett dividend stocks. Although the company remains Berkshire Hathaway’s second-largest holding at the end of Q2 2024, the hedge fund sold its shares in the company in late July and early August. In total, the hedge fund sold 90,422,124 shares, raising approximately $3.82 billion. Due to this, the stock declined by over 10% between July 17 and August 1. Analysts speculate that the decision to divest from BAC may be related to the bank’s sensitivity to interest rate changes. This transaction is not included in the Q2 2024 13F filing, which only covers purchases and sales up to June 30. The fund owned over 1 billion shares in the company, worth more than $41 billion. BAC represented 14.67% of the firm’s 13F portfolio.
Despite ongoing pressure from interest rates on financial stocks, analysts believe that Bank of America Corporation (NYSE:BAC) is now in a favorable position. ClearBridge Investments highlighted this in its Q1 2024 investor letter. Here is what the firm has to say:
“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) currently pays a quarterly dividend of $0.26 per share, having raised it by 8% in July this year. It is one of the best Warren Buffett dividend stocks as the company has never missed a dividend in over 26 years. The stock supports a dividend yield of 2.68%, as of August 21.
The number of hedge funds tracked by Insider Monkey owning stakes in Bank of America Corporation (NYSE:BAC) jumped to 92 in Q2 2024, from 82 in the preceding quarter. These stakes are collectively valued at more than $48 billion.
Overall BAC ranks 2nd on our list of the best dividend stocks to buy according to Warren Buffett. While we acknowledge the potential of BAC as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than BAC but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
