Warren Buffett’s Best High-Yield Dividend Stocks

21: Bank of New York Mellon Corp (NYSE:BK)

Percent of Warren Buffett’s Portfolio: 0.6%
Dividend Yield: 1.8%   Forward P/E Ratio: 12.5x   (as of 4/15/16)
Sector: Financials   Industry: Major Regional Banks
Dividend Growth Streak: 5 years

Bank of New York Mellon Corp (NYSE:BK) was established in 1784 and provides investment management, investment services, and wealth management that help institutions and individuals manage their financial assets. BNY Mellon has over $28 trillion assets under custody and/or administration and operates in more than 100 markets.

The company’s investment management business offers a range of investment strategies (e.g. equities, fixed income, alternatives), investment vehicles (e.g. mutual funds, separate accounts), and wealth management services (e.g. estate planning, private banking).

BNY Mellon’s investment services include execution and processing of trades, servicing investments (e.g. outsource middle office functions, safekeep assets), and capital and liquidity services (e.g. optimize funding and operating capital, access global markets).

Warren Buffett’s Berkshire Hathaway bought its first shares of Bank of New York Mellon during the third quarter of 2010.

One of the reasons why Warren Buffett might have been attracted to BNY Mellon is because the company is solely focused on the investment process and the investment life cycle. As a result, the firm has amassed strong market share positions across most of its businesses.

Rivals simply have a hard time competing with BNY Mellon’s expertise surrounding complex areas such as the clearing and settlement processes for trades and general market infrastructure.

This has helped BNY Mellon build up sizable scale in its markets, enabling it to provide the most cost-effective and comprehensive services to its clients.

Bank of New York Mellon Corp (NYSE:BK) is also conservatively managed and has consistently earned excellent ratings from all four major credit rating agencies.

The company seems very likely to remain a pillar of the world’s investment infrastructure and will continue being relevant and highly profitable for many years to come.

22: Goldman Sachs Group Inc (NYSE:GS)

Percent of Warren Buffett’s Portfolio: 1.5%
Dividend Yield: 1.7%   Forward P/E Ratio: 10.6x   (as of 4/15/16)
Sector: Financials   Industry: Investment Brokers
Dividend Growth Streak: 4 years

Goldman Sachs Group Inc (NYSE:GS) is arguably the most iconic bank on Wall Street. The company’s revenue mix is spread across equities (23%), fixed income / currencies / commodities (FICC – 22%), investment banking (21%), investment management (18%), and investing & lending (16%).

The company’s mix has gradually shifted away from FICC, which has come under regulatory pressure targeting opaque derivatives, in favor of relatively more stable businesses such as investment management and banking.

Warren Buffett’s history with Goldman Sachs dates back to the financial crisis. Berkshire Hathaway purchased $5 billion shares of preferred stock that paid a high-yield dividend of 10%.

Buffett was able to make this opportunistic deal because credit markets were freezing up, banks needed more capital, and fear was running high – especially surrounding Wall Street Banks.

Warren Buffett also received warrants that were later converted into roughly $2 billion of Goldman Sachs’ shares.

Buffett likely believed that Goldman Sachs would retain most of its franchise value after the financial crisis and felt confident that the government’s bailout of banks would keep his investment safe.

Goldman had long been known as the premier Wall Street destination, attracting the “best of the best” talent.

The company remains the number one ranked merger advisor and equity underwriting franchise and does investing banking business with over 8,000 clients across 100 countries. The firm clearly dominates the M&A market.

While banks are still contending with a challenging regulatory and macro environment today, Goldman Sachs Group Inc (NYSE:GS) will remain a key player in finance for decades to come.

23: Mondelez International Inc (NASDAQ:MDLZ)

Percent of Warren Buffett’s Portfolio: 0.1%
Dividend Yield: 1.6%   Forward P/E Ratio: 24.7x   (as of 4/15/16)
Sector: Consumer Staples   Industry: Miscellaneous Food
Dividend Growth Streak: 2 years

Kraft Foods spun off Mondelez in October 2012. Mondelez International Inc (NASDAQ:MDLZ) is a giant food company focused primarily on snack products (85% of sales). The company owns iconic brands such as Oreos, Ritz, Chips Ahoy, Cadbury, and Trident.

By geography, Mondelez generates 63% of its revenue in developed markets and 37% in emerging markets.

Berkshire Hathaway’s small position in Mondelez dates back to late 2012 when Kraft Foods completed its spin-off of the company through a stock distribution.

Warren Buffett was an existing Kraft Foods shareholder and therefore received shares of Mondelez.

Given Berkshire Hathaway’s stake in Kraft Heinz, we know that Buffett likes this type of business. It’s simple to understand, sells essential products, owns a portfolio of strong brands, and generates highly predictable cash flows.

The global snacking market also offers plenty of room for growth. The company estimates its size at $1.2 trillion and expects growth to be driven by rising consumption in emerging markets.

With number one global market share positions in biscuits, candy, and chocolate, Mondelez should benefit over time as consumption grows.

While Mondelez International Inc (NASDAQ:MDLZ) is far from an exciting business, Warren Buffett’s “slow and steady” investment strategy has been a good one.