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 Occidental Petroleum Corporation (NYSE:OXY) 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).
Oil derricks in the background with a few workers in the foreground, emphasizing the company’s oil and gas production activities.
Occidental Petroleum Corporation (NYSE:OXY)
Berkshire Hathaway’s Stake Value: $16,090,394,458
Sector: Energy
Industry: Oil & Gas E&P
Occidental Petroleum Corporation (NYSE:OXY) is an American energy company that is engaged in the exploration of hydrocarbon and is also involved in the manufacturing of petrochemicals. In contrast to Chevron, OXY is primarily focused on domestic operations, with 80% of its production projected to come from the US in 2022. The strength of the company’s operational performance led to strong financial results for the second quarter of 2024. The company is enthusiastic about maintaining this positive momentum through its extensive and varied asset portfolio, now enhanced by the addition of CrownRock.
Occidental Petroleum Corporation (NYSE:OXY) is optimistic about its recent acquisition. The company has set a goal to reduce its debt principal by at least $4.5 billion within a year of completing the CrownRock acquisition. To achieve this, the company plans to use a mix of excess free cash flow and funds from asset sales. Occidental anticipates that CrownRock will increase its free cash flow by $1 billion per year at an oil price of $70 (with current crude oil prices around $75) and aims to sell between $4.5 billion and $6 billion in assets in the future.
In the second quarter of 2024, Occidental Petroleum Corporation (NYSE:OXY) reported an operating cash flow of $2.4 billion and its free cash flow before working capital amounted to $1.3 billion. The company currently pays a quarterly dividend of $0.22 per share for a dividend yield of 1.57%, as of August 21. It is among the best Warren Buffett dividend stocks on our list.
Warren Buffett initially invested in Occidental Petroleum Corporation (NYSE:OXY) in 2019, during the company’s search for financing to acquire Anadarko Petroleum. Since then, Berkshire has significantly increased its stake in OXY, leading some to speculate that Buffett might aim to acquire the entire company. During the second quarter of 2024, the hedge fund increased its stake in the company by 3% and now owns over 255 million OXY shares, worth over $16 billion. The company constituted 5.74% of the firm’s 13F portfolio.
At the end of the second quarter of 2024, 62 hedge funds held stakes in Occidental Petroleum Corporation (NYSE:OXY), up from 61 in the previous quarter. These stakes are collectively valued at over $18.5 billion.
Overall OXY ranks 6th on our list of the best dividend stocks to buy according to Warren Buffett. While we acknowledge the potential of OXY 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 OXY 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.
