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.”
5. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 87
Citigroup Inc. (NYSE:C) has been increasing its dividends consistently since 2011. The company recently posted Q1 results. GAAP EPS in the quarter totaled $1.58, surpassing estimates by $0.41. Revenue fell 1.6% year over year to $21.1 billion, beating estimates by $700 million. Insider Monkey’s database of hedge funds shows that 87 hedge funds had stakes in Citigroup as of the end of 2023.
Silver Beech Capital mentioned Citigroup Inc. (NYSE:C) in its Q1 2024 investor letter. The firm made the following comment:
“Since the beginning of 2023, Citigroup Inc. (NYSE:C) has been one of the Fund’s largest holdings. In our Q3 2023 investor letter, we laid out our core investment thesis for Citi: although the bank was an underperformer (weak returns on equity), Citi was (1) less risky than it had ever been and (2) cheaper than it had ever been. The Fund’s investment thesis for Citi featured in a November 2023 Euromoney article Citi 2.0: If she builds it, will they come?
The market narrative has started to converge on our investment thesis. During the first quarter, Citi was the best-performing bank stock in the S&P 500 index. However, improvements in Citi’s operating performance have come more slowly than its share price gains. Due to this converging market perception with our own thesis, the Fund exited its position in Citi. The Fund’s stake in Citi generated a 34% gross IRR over our 14-month investment period.”
4. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 96
Bank of America Corporation (NYSE:BAC) is the second biggest holding of Warren Buffett, as Berkshire owns a $39.2 billion stake in the company. However, the stock ranks x in our list of Warren Buffett’s best dividend stock picks in 2024 based on hedge fund sentiment, as 96 hedge funds reported having stakes in the company as of the end of 2023.
3. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 131
Warren Buffett has started cutting his stakes in Apple Inc. (NASDAQ:AAPL). Berkshire decreased its hold in Apple by 13% in the first quarter of this year. The fund still owns a massive $135 billion stake in Apple, which makes the stock Berkshire’s biggest holding. With over a decade of consistent dividend increases and huge cash piles, Apple Inc. (NASDAQ:AAPL) is one of the best dividend stock picks of Warren Buffett based on hedge fund sentiment.
Polen Capital mentioned Apple Inc. (NASDAQ:AAPL) in its first quarter 2024 investor letter. Here is what the firm has to say:
“The largest relative contributors to the Portfolio’s performance during the first quarter were SAP, Apple Inc. (NASDAQ:AAPL) (not owned), and Amazon.
The zero weight to Apple was another notable relative contributor in the quarter. More recently, Apple has come under pressure from a confluence of issues ranging from a weak iPhone cycle, market share erosion in China, mounting regulatory pressure around App Store fees in Europe, and a lawsuit from the U.S. Justice Department accusing the company of anticompetitive practices in its iPhone business. All this has resulted in the stock down -11% year to date, underperforming the overall Index by -19%—Apple’s worst relative performance quarter since 2013. It remains a great business and one we follow, but we’re content not owning it right now, given its growth prospects relative to its valuation.”
2. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 141
Mastercard Incorporated (NYSE:MA) is one of Warren Buffett’s best dividend stock picks. In December, the payment cards company announced a 16% dividend hike, keeping in line with its dividend growth announcement last year. Mastercard’s dividend has seen growth at a CAGR of 15.2%.
Warren Buffett’s Berkshire owns a $1.9 billion stake in Mastercard Incorporated (NYSE:MA) as of the end of the March quarter.
1. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 162
Visa Inc. (NYSE:V) is one of the most popular dividend stocks among the 933 hedge funds tracked by Insider Monkey. A total of 162 hedge funds had stakes in Visa as of the end of the first quarter of 2024. Visa Inc. (NYSE:V) has 16 consecutive years of dividend increases under its belt.
Berkshire Hathaway owns a $2.3 billion stake in the company as of the end of the March quarter.
Wedgewood Partners mentioned Visa Inc. (NYSE:V) in its Q1 2024 investor letter and made the following analysis:
“Visa Inc. (NYSE:V) stock posted a small negative drop during the quarter. In the first quarter, the Company grew earnings per share +11% as payment volume growth was up +8% and cross-border payment grew a solid +16%, adjusted for currency. Beyond their consistent growth and execution, recent regulatory trends have caught considerable investor attention. The Company’s networks and value-added services drive enough economic value to bank customers and retailers that the addressable market for payments should continue growing at a healthy rate for many more years, regardless of recent regulatory changes. Visa’s value-added services can be extended to less-sophisticated, emerging non-Visa networks to help grow the overall payment ecosystem that make up the vast global payment addressable market. For example, not long after debit interchange rates were regulated last decade, Visa began an aggressive push to allow non-bank 2inancial institutions access to Visa’s networks, which helped drive more interchange volume to banks and offset lower interchange rates. This was a key element that spawned the massive “Fintech” industry that exists today. We continue to expect Visa’s scale and breadth of service offerings will help them drive attractive growth at stellar margins along with the overall payments’ ecosystem.”
