Dividend stocks are seeing a renewed focus from investors this year as the cost of easy money is expected to remain elevated and inflation continues to bite millions of Americans. When the inflation storm began in 2022 and the Fed started applying brakes on the economic activity, investment experts said that the market pendulum might shift in the favor of dividend stocks, which had hitherto languished, especially after the pandemic. Since the end of 2008, dividend stocks with over 5% yields returned 450%. This seems paltry when you look at the S&P Composite 1500 gain of over 640% in the same period. Non-dividend paying stocks on average returned 1200% in this period.
Wisdom Tree in its Q2’2024 outlook report said that it’s “gravitating” towards high-quality dividend stocks with strong fundamentals and resilience. The report said investing in these stocks would help in both cases: if the Fed starts cutting rates and positivity prevails, or if we see any “economic shock” in 2024 amid more volatility.
Warren Buffett often boasts about the hefty dividend payments he enjoys during his annual letters. In his 2022 letter to Berkshire shareholders, the billionaire talked about the importance of patience in investing:
These dividend gains, though pleasing, are far from spectacular. But they bring with them important gains in stock prices. At yearend, our Coke investment was valued at $25 billion while Amex was recorded at $22 billion. Each holding now accounts for roughly 5% of Berkshire’s net worth, akin to its weighting long ago. Assume, for a moment, I had made a similarly-sized investment mistake in the 1990s, one that flat-lined and simply retained its $1.3 billion value in 2022. (An example would be a high-grade 30-year bond.) That disappointing investment would now represent an insignificant 0.3% of Berkshire’s net worth and would be delivering to us an unchanged $80 million or so of annual income. The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.”
Methodology
For this article we first scanned Warren Buffett’s Q1’2024 and listed down all his dividend stock picks. From these stocks we chose 8 stocks with the highest number of hedge fund investors. These are the best Warren Buffett dividend stocks to buy based on hedge fund sentiment. To see Warren Buffett’s largest holdings as of the latest quarter, see Berkshire Hathaway’s Q1’2024 stock portfolio.
8. American Express Company (NYSE:AXP)
Number of Hedge Fund Holders: 64
American Express Company (NYSE:AXP) is one of the best dividend stocks to buy according to Warren Buffett. Berkshire owns a $34.5 billion stake in the payments company as of the end of the March quarter. A total of 64 hedge funds in Insider Monkey’s database of 933 funds had stakes in the company. AXP shares have gained about 28% so far in 2024.
Artisan Partners mentioned American Express Company (NYSE:AXP) in its Q4 2023 investor letter. Here is what the firm has to say:
“Our top performers this quarter were American Express Company (NYSE:AXP), Expedia and Axalta. American Express saw a 26% share price gain. The business has performed well over the past year and over our holding period. While American Express’ long-term growth and attractive business model is well known and understood, the shares had been flat to down for most of the year on fears of a recession. In a recessionary environment, consumer spending slows, which impacts revenue, and credit costs go up as consumers have a harder time paying their bills. As fears about a recession receded in Q4, investors bid up American Express shares.”
7. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 66
With a dividend yield of about 1.4% and a PE ratio of 17.29, Texas-based Occidental Petroleum Corporation (NYSE:OXY) is one of the best dividend stock picks of Warren Buffett. Berkshire owns a whopping $116 billion stake in the company as of the end of the first quarter this year. In May, the company posted weak Q1 results. Adjusted EPS in the quarter came in at $0.63, beating estimates by $0.06. Revenue fell 17.6% year over year to $5.98 billion, missing estimates by $800 million.
6. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 71
Chevron Corporation (NYSE:CVX) has 36 years of consistent dividend increases under its belt. It ranks sixth in our list of the best dividend stock picks of Warren Buffett since Berkshire Hathaway owns a $19.4 billion stake in the oil giant. Over the past one year Chevron shares have gained about 7% in value. Chevron’s dividend yield as of May 20 stands at around 4%.
Insider Monkey’s proprietary database of 933 hedge funds shows that 71 hedge funds were long CVX as of the end of the first quarter of this year.
Here is what Carillon Tower Advisers has to say about Chevron Corporation (NYSE:CVX)’s recent performance in its Q4 2023 investor letter:
“Chevron Corporation (NYSE:CVX) traded lower, along with oil prices, and issued a disappointing earnings announcement due to overseas refining losses. Separately, the company announced an agreement to buy another energy company with operations offshore of Guyana, as well as in North Dakota, the Gulf of Mexico, and the Gulf of Thailand. This is a strategic acquisition for very little takeout premium.”