Warren Buffett’s Best High-Yield Dividend Stocks

9: Suncor Energy Inc. (USA) (NYSE:SU)

Percent of Warren Buffett’s Portfolio: 0.6%
Dividend Yield: 3.1%   Forward P/E Ratio: N/A   (as of 4/15/16)
Sector: Energy   Industry: Integrated Oil
Dividend Growth Streak: 12 years

Suncor Energy Inc. (USA) (NYSE:SU) is an integrated oil company that is focused on developing Canada’s oil sands. Unlike conventional crude oil, oil sands is a rough mixture of bitumen, sand, clay, silts, and water that must be mined or heated underground in order for it to be processed.

Suncor was the first to produce crude oil from the oil sands of Alberta in the 1960s and has since grown to become the largest integrated oil business in Canada. As an integrated player, Suncor’s profits are somewhat balanced between upstream, midstream, and downstream operations, which provides some support to its cash flows.

Berkshire Hathaway began buying shares of Suncor in 2013 and subsequently increased its stake during the second half of 2015.

Warren Buffett’s team was likely attracted to Suncor because of its high quality asset base, strong balance sheet, and integrated energy model.

Since Suncor was the first to construct an oil sands plant nearly 50 years ago in Alberta, the company presumably had an advantage in understanding the resource base there.

This allowed Suncor to invest in the best land and infrastructure, amassing a high quality resource base that is virtually impossible for other operators in the region to replicate. Suncor’s current oil sands resource base has almost 40 years of production left at its current rates and enjoys a very low cost of production near $20 per barrel.

Berkshire Hathaway was also likely attracted to the company because of its integrated operations and impressive logistical network. Suncor owns thousands of kilometers of pipelines, more than 7,000 rail cars, and over 11 million barrels of storage capacity at terminals located across North America.

As a result, Suncor can get the best prices for its oil and has the flexibility to use its resources in mid- and downstream operations depending on market conditions. This flexibility helps Suncor generate superior cash flows compared to its peers and provides a bit of a hedge in the event that oil prices remain depressed.

Finally, Warren Buffett likes conservative management teams that put shareholders first and invest for the long term. Suncor had one of the best balance sheets going into the oil downturn, which allowed it to continue investing in growth projects and opportunistically acquire rivals at a discount. Suncor Energy Inc. (USA) (NYSE:SU) has certainly proven to be a disciplined capital allocator over time that focuses on the long haul.

Read More: Suncor: Warren Buffett’s Big Oil Bet

10: Kraft Heinz Co (NASDAQ:KHC)

Percent of Warren Buffett’s Portfolio: 18%
Dividend Yield: 3.0%   Forward P/E Ratio: 26.3x   (as of 4/15/16)
Sector: Consumer Staples   Industry: Miscellaneous Food
Dividend Growth Streak: 3 years

Kraft Heinz Co (NASDAQ:KHC) is one of the largest food and beverage companies in the world. The company sells a wide variety of condiments, sauces, cheese and dairy products, meals, meats, beverages, and other grocery products in more than 190 countries.

The company was formed after Heinz acquired Kraft in 2015. Both companies have operated in the food industry for over 100 years and collectively own famous brands such as Jell-O, Velveeta, Lunchables, Bagel Bites, Philadelphia, Ore Ida, Planters, Oscar Mayer, and many others.

Berkshire Hathaway and a private equity firm teamed up to take Heinz private in 2013 and later acquired Kraft Foods in 2015. Kraft Heinz is Warren Buffett’s second biggest holding, behind only Wells Fargo.

Warren Buffett’s stake in Kraft Heinz was largely a play on owning a business with extremely durable and proven brands that will continue growing over time.

Here is what Warren Buffett had to say about Berkshire Hathaway’s stake in Kraft Heinz:

“The short term doesn’t make much difference to us, because we will be in this stock forever. This is a business with us. It’s not really a stock…It’s where the new Kraft Heinz Co. is 10, 20, 50 years from now that counts to Berkshire. These are brands I liked 30-plus years ago, and I like them today. And I think I’ll like them 30 years from now.”

Kraft Heinz Co (NASDAQ:KHC)’s products are found on grocery shelves around the world and will remain entrenched for many years to come, even if their growth rates aren’t stellar. This seems like another Buffett stock that is boring, predictable, and rewarding for income investors.

11: General Electric Company (NYSE:GE)

Percent of Warren Buffett’s Portfolio: 0.3%
Dividend Yield: 3.0%   Forward P/E Ratio: 20.7x   (as of 4/15/16)
Sector: Industrials   Industry: Diversified Operations
Dividend Growth Streak: 5 years

General Electric Company (NYSE:GE) is an industrial conglomerate that has been around for a long time. Only 12 companies made up the original Dow Jones Industrial Average in 1896, and GE is the only one still on the list.

General Electric’s industrial operations are diversified across a wide range of large products such as gas turbines, oilfield equipment, aircraft engines, locomotives, and medical imaging gear. Most of its revenue is derived overseas, and the majority of GE’s industrial profits are actually from aftermarket products and services (not the original equipment sale).

Income investors certainly haven’t forgotten the pain GE inflicted on many portfolios during the financial crisis.

The company’s lending operations pushed it to the brink of bankruptcy, forcing it to cut its dividend and raise billions of dollars by issuing stock.

Warren Buffett swooped in during late 2008 and agreed to acquire $3 billion in preferred stock that paid a 10% dividend. Berkshire Hathaway exited his warrants five years later in a share settlement, which resulted in the firm’s current stake in GE.

General Electric is another American icon in Buffett’s portfolio and contains a number of strong brands and leading market share positions.

While the stock is a small position for Buffett, there are several reasons why Berkshire Hathaway sees some potential in GE’s long-term future.

Most importantly, the company is in the middle of a major transformation that will see its industrial operations shift from 57% of earnings in 2014 to over 90% by the end of 2018.

This transition will substantially reduce GE’s sensitivity to its capital financing operations and allow it to focus resources on its most profitable, fastest-growing markets.

Buffett might also be fond of GE’s industrial operations because of their mission-critical products and strong aftermarket businesses.

GE’s customer relationships go back decades in most of its markets. The company is entrenched with many of them because its high-value equipment requires strong knowledge of the customers’ business and meaningful aftermarket support.

The company’s size, economies of scale, and customer intimacy allow it to underprice smaller rivals on new equipment sales and make its money in the aftermarket business.

As a result, General Electric Company (NYSE:GE)’s service business generates over 75% of its total industrial segment’s operating profit and makes it very difficult for competitors to gain market share.

Read More: GE – An Unloved Dividend Stock with Long-term Potential