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 Chevron Corporation (NYSE:CVX) 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).
An aerial view of an oil rig at sea, the sun glinting off its structure.
Chevron Corporation (NYSE:CVX)
Berkshire Hathaway’s Stake Value: $18,553,059,728
Sector: Energy
Industry: Oil & Gas Integrated
Chevron Corporation (NYSE:CVX) ranks fifth on our list of the best Warren Buffett dividend stocks. The American energy company is known for its generous dividends, maintaining regular payouts since 1984. Moreover, the company has raised its dividends consistently for the past 37 years. It currently offers a quarterly dividend of $0.63 per share and has a dividend yield of 4.49%, as of August 21.
Oil companies have traditionally preferred using dividends as a way to return capital to shareholders. Even during periods of low oil prices, they often take on debt and leverage their assets to maintain these payouts. However, Chevron Corporation (NYSE:CVX) stands out from this trend. The company is attracting investors due to its strong cash flow, which provides a reliable cushion against the volatility of oil prices. In the second quarter of 2024, the company reported an operating cash flow of $6.3 billion and its free cash flow came in at $2.3 billion. Due to this solid cash flow generation, it returned $6 billion to shareholders through dividends and share repurchases. This marked the company’s ninth consecutive quarter of providing over $5 billion in shareholder returns.
Warren Buffett started building its position in Chevron Corporation (NYSE:CVX) during the third quarter of 2020 with shares worth over $3 billion. Over the years, his hedge fund has gradually increased its stake in the company. In the second quarter of 2024, the fund made a slight adjustment to its stake in CVX, reducing it by 4%. Still, it is the firm’s fifth-largest holding, making up 6.62% of its portfolio.
As of the end of the June quarter of 2024, 64 hedge funds tracked by Insider Monkey held stakes in Chevron Corporation (NYSE:CVX), up from 62 in the previous quarter. These stakes have a total value of over $22.4 billion.
Overall CVX ranks 5th on our list of the best dividend stocks to buy according to Warren Buffett. While we acknowledge the potential of CVX 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 CVX 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.