15: Johnson & Johnson (NYSE:JNJ)
Percent of Warren Buffett’s Portfolio: 0.02%
Dividend Yield: 2.8% Forward P/E Ratio: 17.2x (as of 5/16/16)
Sector: Medical Industry: Pharma
Dividend Growth Streak: 53 years
Johnson & Johnson (NYSE:JNJ) is one of the biggest healthcare companies in the world with over $70 billion in sales. Most of J&J’s profits are from sales of branded pharmaceuticals, but the company also big consumer products and medical devices businesses.
Johnson & Johnson is a very international business with just over half of its sales coming from international markets.
Johnson & Johnson used to be one of Buffett’s biggest holdings 10 years ago but is one of Berkshire Hathaway’s smallest holdings today.
Why did Warren Buffett invest in Johnson & Johnson in the first place? For one thing, healthcare is one of the best stock sectors for dividends because of its stability.
People require healthcare products and services regardless of how the economy is doing, which makes Johnson & Johnson’s cash flows very reliable. The company’s sales were only down in the low-single digits during the financial crisis, and JNJ’s stock beat the S&P 500 by 29% in 2008.
Johnson & Johnson’s management team has also positioned the company in markets it can dominate. Roughly 70% of its sales are from number one or number two market share positions.
To remain competitive, the company invests over $8 billion in research and development each year. While the development of new drugs is risky, Johnson & Johnson has an excellent track record and can use the predictable cash flows from its consumer businesses to steadily fund new product research.
Johnson & Johnson (NYSE:JNJ) has a pristine balance sheet with over $20 billion in excess cash, generates reliable free cash flow every year, earns a strong return on equity, and is well positioned to benefit from rising global spending on healthcare. These are all good things that Buffett looks for when he invests.
Read More: Johnson & Johnson – A Rock Solid Dividend
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16: Kraft Heinz Co (NASDAQ:KHC)
Percent of Warren Buffett’s Portfolio: 19.9%
Dividend Yield: 2.7% Forward P/E Ratio: 27.6x (as of 5/16/16)
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.
