World Stock Watch

Warren Buffett’s Surprising Love for High-Yield Dividend Stocks

Warren Buffett, the billionaire investor, may not need extra income, but he still has a soft spot for dividend stocks. Berkshire Hathaway, his conglomerate, boasts an impressive portfolio that includes six high-yield dividend stocks with yields at least twice that of the S&P 500.

The Top 6 High-Yield Dividend Stocks in Buffett’s Portfolio

Let’s dive into the list of Buffett’s high-yield dividend stocks, ranked by their forward dividend yield:

1. Kraft Heinz: With a yield of 5.23%, Kraft Heinz takes the top spot. Berkshire owns a significant stake in the food company, making it one of its subsidiaries.
2. Chevron: The oil and gas giant offers a forward dividend yield of 4.09%, making it Berkshire’s fifth-largest holding.
3. Diageo: The British alcoholic beverage maker trails behind Chevron, with a yield of 3.47%. Despite being one of Berkshire’s smallest positions, Diageo is a notable addition to the portfolio.
4. Ally Financial: The bank’s forward dividend yield is 3.37%, and Buffett initiated a position in Ally in the first quarter of 2022.
5. Citigroup: Another bank, Citigroup, offers a forward dividend yield of 3.27%. Like Ally, Buffett first bought Citigroup in early 2022.
6. Coca-Cola: With a yield of 3.1%, Coca-Cola rounds out the list. Although it has the lowest yield, it’s the stock Buffett has owned for the longest period.

Beyond Dividend Yields: Comparing the Stocks

While dividend yields are attractive, they’re not the only factor to consider. Coca-Cola boasts an impressive dividend track record, with 62 consecutive years of dividend increases, earning it a spot among the elite Dividend Kings. Chevron follows closely, with 37 consecutive years of dividend hikes.

The high-yield bank stocks stand out based on valuation, with Ally Financial sporting a low forward price-to-earnings ratio of 7.9 and Citigroup’s forward earnings multiple around 9.4. Kraft Heinz isn’t far behind, with shares trading at roughly 9.8 times forward earnings.

Growth Prospects and Valuation

Ally Financial and Citigroup have promising growth prospects, with analysts forecasting 48.9% and 22.1% earnings growth, respectively, next year. Chevron comes in third, with a projected 9.2% earnings growth.

The Best of the Bunch: Chevron

While all these high-yield dividend stocks have their merits, Chevron stands out as the best of the bunch. With an exceptional dividend yield, strong record of dividend increases, and promising growth prospects, Chevron is an attractive choice for income investors. Its valuation is also reasonable, trading at around 13.3 times forward earnings, well below the average forward earnings multiple of 15.1 for the S&P 500 energy sector.