Warren Buffett’s Best High-Yield Dividend Stocks

24: Moody’s Corporation (NYSE:MCO)

Percent of Warren Buffett’s Portfolio: 1.9%
Dividend Yield: 1.5%   Forward P/E Ratio: 20.8x   (as of 4/15/16)
Sector: Financials   Industry: Miscellaneous Services
Dividend Growth Streak: 7 years

Moody’s Corporation (NYSE:MCO) is a leading provider of credit ratings, research, and risk analysis services. The company’s ratings and analysis track debt that covers over 11,000 corporate issuers, 21,000 public finance issuers, and more than 76,000 structured finance obligations.

The company’s ratings and research help investors better understand the risk behind fixed-income securities they are considering buying to help markets operate more efficiently.

Warren Buffett bought his first shares of Moody’s back in 2000 around the time that the company went public.

Warren Buffett probably liked Moody’s because of its duopoly position with Standard & Poor’s (regulations have limited the number of ratings agencies), strong pricing power, well-known brand, and essential services (e.g. a company can’t issue a bond without a ratings agency).

These factors enabled Moody’s to earn extraordinary returns on capital and develop a high level of trust with clients. Barriers to entry are very high.

Following the financial crisis, there was plenty of controversy surrounding rating agencies, which placed strong ratings on bonds backed by subprime mortgages that led to the housing crisis.

As a result, substantial damage was done to their brands and they came under increased government scrutiny.

However, ratings agencies have fared much better following the financial crisis than many investors expected.

Today’s low interest rate environment has led to significant bond issuances around the world, which has helped lift their businesses.

Moody’s Corporation (NYSE:MCO) continues to be a free cash flow machine and looks to remain a force in the global financial markets for a long time to come.

Read More: Analysis of S&P’s Parent, McGraw Hill

25: Restaurant Brands International Inc (NYSE:QSR)

Percent of Warren Buffett’s Portfolio: 0.2%
Dividend Yield: 1.5%   Forward P/E Ratio: 32.6x   (as of 4/15/16)
Sector: Consumer Discretionary   Industry: Food & Restaurants
Dividend Growth Streak: 0 years

Restaurant Brands International Inc (NYSE:QSR) is the parent company of Burger King and Tim Hortons, which combined in 2014 to claim the title of the world’s third-largest fast food business with over 19,000 restaurants.

Burger King is the second-largest fast foot hamburger chain in the world and serves more than 11 million customers every day.

Tim Hortons was founded in 1964 and is the largest quick service restaurant chain in Canada. The restaurant specializes in coffee, baked goods (e.g. doughnuts), and home-style lunches.

Berkshire Hathaway’s stake in Restaurant Brands International Inc (NYSE:QSR) arose from Warren Buffett’s involvement with the merger between Burger King and Tim Hortons, which granted him warrants to buy stock in the combined business.

Berkshire Hathaway also owns $3 billion of preferred shares in the company, which pay him a high-yield dividend of 9% each year.

The consumer sector is home to many famous brands and has historically been one of Warren Buffett’s favorite places to pick stocks.

Burger King and Tim Hortons are two of the most well-known restaurant brands in the United States and Canada.

Importantly, both businesses seem to have plenty of potential for international growth. Burger King is already in more than 100 different countries, and Tim Hortons has little presence outside of Canada.

The company’s global scale, brand recognition, and prominent locations make it a free cash flow machine that should enjoy steady growth over the long term.

26: Costco Wholesale Corporation (NASDAQ:COST)

Percent of Warren Buffett’s Portfolio: 0.5%
Dividend Yield: 1.2%   Forward P/E Ratio: 28.6x   (as of 4/15/16)
Sector: Consumer Discretionary   Industry: Discount Retail
Dividend Growth Streak: 12 years

Costco Wholesale Corporation (NASDAQ:COST) started in 1983 and is the largest wholesale-club retailer in the country. The company operates large membership warehouses that offer members reasonably low prices on an assortment of products covering categories such as groceries, electronics, apparel, and more.

Costco has been one of Warren Buffett’s stock picks since 2000. Berkshire Hathaway scooped up shares after the stock plunged by nearly 40% during the year.

Buffett was very familiar with the company as Berkshire’s vice chairman, Charlie Munger, served on Costco’s board in the late 1990s.

Warren Buffett was likely attracted to Costco because of its low-cost producer status, reputation for quality, and loyal customer base.

Costco’s advantages begin with its 80 million cardholders (a membership card is required to shop at Costco). The company’s large group of customers provides Costco with excellent purchasing power over its suppliers, helping keep prices below traditional wholesale or retail outlets.

Management also keeps the company focused on providing excellent value by eliminating as many frills and costs as possible. Costco stores are far from extravagant on the inside and even eliminate the use of bags at checkout to save money and price their products lower.

The assortment of products at Costco is also unique. Many of its products are exclusive, and customers really can’t find the same mix of quantity, quality, and value anywhere else. This has helped Costco continue its strong growth despite increased competition from e-commerce players such as Amazon.

As a result of its low prices, quality merchandise, and simple shopping experience, Costco’s membership renewal rate has been excellent at around 90%.

What’s held Buffett back from buying more of this wonderful business? Unlike its products, the stock rarely looks like a bargain.

In hindsight, Berkshire surely wishes it had loaded up on more shares of Costco Wholesale Corporation (NASDAQ:COST) back in 2000.