Warren Buffett’s Best High-Yield Dividend Stocks

15: Kinder Morgan Inc (NYSE:KMI)

Percent of Warren Buffett’s Portfolio: 0.3%
Dividend Yield: 2.8%   Forward P/E Ratio: 25.5x   (as of 4/15/16)
Sector: Energy   Industry: Oil & Gas Production & Pipeline
Dividend Growth Streak: 0 years

Kinder Morgan Inc (NYSE:KMI) is the largest energy infrastructure company in North America. The company maintains over 80,000 miles of pipelines that primarily transport natural gas, crude oil, refined products (e.g. gasoline), and carbon dioxide.

Kinder Morgan also owns approximately 180 terminals that are used to store oil, chemicals, ethanol, and other commodities.

Kinder Morgan is one of Berkshire Hathaway’s most recent purchases. Berkshire Hathaway purchased a stake in the company during the fourth quarter of 2015 after the stock had sold off by more than 50% during the year and slashed its dividend.

Kinder Morgan’s poor performance was driven by lower energy prices and unfavorable contract developments.

What does Buffett see in Kinder Morgan?

Most likely, Warren Buffett bought Kinder Morgan because he was attracted to the company’s hard-to-replicate assets, which became available at an attractive price for long-term investors.

There are only so many pipelines and terminals that are needed to handle North America’s energy infrastructure needs, and Kinder Morgan happens to own many of the most important ones.

The company’s natural gas pipeline network is the largest in the country and connects to virtually every important U.S. natural gas resource play. Energy producers and consumers will likely need Kinder Morgan’s services for decades to come. Its assets are mission-critical to North America’s energy needs.

While the fallout in oil and gas prices impaired Kinder Morgan’s ability to continue investing for growth and paying its high-yield dividend, the nature of the pipeline business is reliable in most environments.

Most of the company’s pipeline projects are secured by long-term contracts and offer attractive fee-based returns that are not directly exposed to commodity prices.

By purchasing Kinder Morgan Inc (NYSE:KMI) during a cyclical downturn, Berkshire Hathaway gains exposure to a unique and valuable set of assets that should benefit over the long haul as North American energy production rises.

Read More: 8 Risks of Investing in MLPs

16: Phillips 66 (NYSE:PSX)

Percent of Warren Buffett’s Portfolio: 3.8%
Dividend Yield: 2.7%   Forward P/E Ratio: 14.0x   (as of 4/15/16)
Sector: Energy   Industry: Oil Refining & Marketing
Dividend Growth Streak: 3 years

Phillips 66 (NYSE:PSX) was spun off from ConocoPhillips in 2012 and generates the majority of its profits from refining oil, marketing refined petroleum products such as gasoline, and selling various chemicals such as plastics that are made from oil.

Phillips 66 is one of Berkshire Hathaway’s larger holdings. Warren Buffett was previously invested in ConocoPhillips, which spun off Phillips 66 in 2012. He subsequently sold out of his stake in ConocoPhillips and has consistently been increasing his stake in Phillips 66.

Phillips 66 is benefiting from the drop in oil prices because oil is a major input cost for its refining operations. Since the price of gas hasn’t fallen as much as the price of oil, the company’s refining operations are enjoying profit increases.

However, Warren Buffett doesn’t buy stocks for short-term profits. When he makes an investment, he plans to hold on forever.

In the case of Phillips 66, Berkshire Hathaway is likely excited about the company’s plan to reshape its business and capitalize on the North American energy renaissance.

Management is investing in midstream and chemicals operations to drive future growth, which will make the business less dependent on refining and provide more balanced cash flows.

As this plays out, Phillips 66 (NYSE:PSX)’s businesses should benefit from growing North American energy production and see their collective earnings power rise.

17: Sanofi SA (ADR) (NYSE:SNY)

Percent of Warren Buffett’s Portfolio: 0.1%
Dividend Yield: 3.7%   Forward P/E Ratio: 14.0x   (as of 4/15/16)
Sector: Medical   Industry: Pharma
Dividend Growth Streak: 21 years

Sanofi SA (ADR) (NYSE:SNY) is one of the biggest pharma companies in the world and focuses on therapeutic areas such as cardiovascular disease, thrombosis, oncology, metabolic diseases, central nervous system, internal medicine, and vaccines.

Some of the company well-known drugs are Ambien (sleep aid) and Plavix (combats cardiac plaque). The business is also very international with sales in emerging markets representing over 30% of total revenue.

Warren Buffett has owned shares of Sanofi since 2006 and is optimistic about the company’s franchise value and opportunities for long-term growth.

Drug pipelines are notoriously hard to predict, and Sanofi spends 14% of its revenue on research and development each year. Few companies can match the magnitude and pace of Sanofi’s spending on innovation and the intellectual property accumulated by the business.

The company’s investments have helped it launch more products over shorter periods of time to drive growth. From 2008-2012, Sanofi launched three new products. From 2012-2014, the company launched 10 new products.

As R&D spending rises through 2020, Sanofi SA (ADR) (NYSE:SNY)’s growth potential should increase as well.