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 The Kraft Heinz Company (NASDAQ:KHC) 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).
A closeup of an assembly line worker inspecting a newly produced jar of condiments and sauces.
The Kraft Heinz Company (NASDAQ:KHC)
Berkshire Hathaway’s Stake Value: $10,491,953,836
Sector: Consumer Staples
Industry: Packaged Foods
The Kraft Heinz Company (NASDAQ:KHC) is an Illinois-based food company that deals in a wide range of snacks and beverages. Buffett first invested in H.J. Heinz Co. in 2013, aiding 3G Capital in acquiring the company. He was also involved in facilitating the merger with Kraft in 2015. Despite this, Buffett has openly acknowledged to investors that the Kraft Heinz investment has not been among his best choices. He began to decrease his investment in the company after 2018 due to challenges facing the industry. Kraft Heinz attempted to boost growth through an acquisition bid for Unilever, but the offer was rejected by the owner of Popsicle. In 2019, the company faced a challenging quarter, during which the company significantly reduced its dividend. Despite this setback, Buffett continued to support his investment. The company responded by planning to increase its spending on marketing and advertising and to change its approach to developing new products. That said, the company has ultimately proven to be a long-term investment for him. As of the end of Q2 2024, The Kraft Heinz Company (NASDAQ:KHC) is the seventh-largest holding of Berkshire Hathaway. The hedge fund owned nearly 326 million shares in the company, worth $10.5 billion. The company made up 3.74% of the firm’s portfolio.
The Kraft Heinz Company (NASDAQ:KHC) reported a robust cash position during the first six months of FY24, which is crucial for a company that pays dividends. The company’s operating cash flow for the quarter came in at $1.7 billion, which showed an 8.1% growth from the same period last year. Its free cash flow for the period was $1.2 billion, up 8.7% from the prior-year period. It currently pays a quarterly dividend of $0.40 per share and has a dividend yield of 4.52%, as of August 21.
At the end of June 2024, 43 hedge funds tracked by Insider Monkey owned stakes in The Kraft Heinz Company (NASDAQ:KHC), which remained unchanged from the previous quarter. These stakes are valued at more than $11 billion in total.
Overall KHC ranks 7th on our list of the best dividend stocks to buy according to Warren Buffett. While we acknowledge the potential of KHC 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 KHC 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.