By Sure Dividend. Originally published at ValueWalk.
I think you’ll agree with me that high dividend stocks can be excellent investments for those looking for both:
- Current income
- Bond-beating total returns
But it can be difficult to find high quality, high dividend stocks.
It isn’t much good finding high yielding stocks when they cut their dividends shortly thereafter.
That’s where Warren Buffett comes in…
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Warren Buffett’s portfolio is filled with quality high dividend stocks.
You can ‘cheat’ off of Warren Buffett’s own picks to find high quality, high dividend stocks for your portfolio. That’s because Buffett (and other institutional investors) are required to periodically show their holdings in a ’13F Filing’. On November 14th, 2016, Buffett released his latest 13F Filing.
This article analyzes Warren Buffett’s top 20 high dividend stocks based on yield from his latest 13F filing.
Table of Contents
You can skip to analysis of any of Warren Buffett’s 20 high dividend stocks with the table of contents below. Stocks are listed in order from lowest yield to highest yield.
- Mondelez (MDLZ): 1.8% dividend yield
- American Express (AXP): 1.8% dividend yield
- M&T Bank Corporation (MTB): 2.0% dividend yield
- Apple (AAPL): 2.1% dividend yield
- U.S. Bancorp (USB): 2.3% dividend yield
- Kinder Morgan (KMI): 2.3% dividend yield
- Deere & Company (DE): 2.6% dividend yield
- United Parcel Service (UPS): 2.7% dividend yield
- Johnson & Johnson (JNJ): 2.8% dividend yield
- Wells Fargo & Company (WFC): 2.9% dividend yield
- The Kraft Heinz Company (KHC): 2.9% dividend yield
- Wal-Mart (WMT): 2.9% dividend yield
- General Electric (GE): 3.0% dividend yield
- Phillips 66 (PSX): 3.0% dividend yield
- Procter & Gamble (PG): 3.3% dividend yield
- Coca-Cola (KO): 3.4% dividend yield
- IBM (IBM): 3.5% dividend yield
- Sanofi (SNY): 4.2% dividend yield
- General Motors (GM): 4.6% dividend yield
- Verizon (VZ): 4.8% dividend yield
Warren Buffett & Dividend Stocks
Buffett has grown his wealth by investing in and acquiring business with strong competitive advantages trading at fair or better prices.
Most investors know Warren Buffett looks for quality, but few know the degree to which he invests in dividend stocks.
- 92% of Warren Buffett’s portfolio is invested in dividend stocks
- His top 4 holdings have an average dividend yield of 3.2% (and make up 63% of his portfolio)
- Many of his dividend stocks have paid rising dividends over decades
Warren Buffett prefers to invest in shareholder friendly businesses with long track records of success.
It happens that dividend stocks with long histories of dividend increases match what Warren Buffett looks for in a stock investment.
This article examines Warren Buffett’s top 20 high dividend.
#20 – Mondelez (MDLZ)
Dividend Yield: 1.8%
Price-to-Earnings Ratio: 20.3 (forward P/E used)
Years of Steady or Rising Dividends: 45 (including pre-spinoff history)
Percent of Warren Buffett’s Portfolio: 0.0% (very small amount)
10 Year Earnings-Per-Share Growth Rate: N/A (due to spin-off)
Mondelez is the largest confectioner in the world based on its market cap of $67 billion. The company owns a portfolio of well-known brands. Mondelez’ 8 brands that generate more than $1 billion a year in sales are shown in the image below.
Source: Mondelez Investor Relations
Mondelez recently attempted to acquire Hershey’s (HSY). The acquisition fell through, however. Mondelez will have to settle for ‘just’ 8 billion dollar brands for now…
The company will likely pursue smaller bolt-on acquisitions instead.
Mondelez operates in one of the slowest changing industries around. Sweet snacks will likely never go out of style. Moreover, sugar and chocolate can be addicting. This is similar in some ways to Philip Morris (PM) and Altria (MO), Mondelez parent companies [through Kraft (KRFT)].
Despite its stability, Mondelez shares are a hold – not a buy – at current prices. The stock looks a bit pricey currently. Indeed, Mondelez has been pricey since becoming a stand-alone business. The company’s average price-to-earnings ratio over a year hasn’t dipped below 20. If the company’s price-to-earnings ratio does decline below 20 (and preferably lower), it will become a more compelling investment.
The stock currently yields 1.8%; the lowest of Buffett’s 20 highest yielding dividend stocks. The stocks in this article are analyzed in order of yield, from lowest to highest.
#19 – American Express (AXP)
Dividend Yield: 1.8%
Price-to-Earnings Ratio: 12.9
Years of Steady or Rising Dividends: 39 years without a reduction
Percent of Warren Buffett’s Portfolio: 7.5%
10 Year Earnings-Per-Share Growth Rate: 4.0%
American Express is a large credit services business with a market cap of $67 billion. The company was founded in 1850 by Henry Wells, William Fargo, and John Warren Butterfield.
If the names Wells and Fargo sound familiar to you, they should. Henry Wells and William Fargo also founded Wells Fargo (WFC). Clearly, Buffett is a fan of Henry Wells and William Fargo’s businesses. Buffett has invested 24% of his portfolio in these two businesses.
American Express is a long-term Buffett hold…
He originally invested in American Express back in 1964. At the time, the company was going through a ‘salad oil scandal’. History is often stranger than fiction. The scandal created an excellent buying opportunity for Buffett. In fact, Buffett invested around 40% of his fund’s money into American Express to maximize his exposure to the mispricing.
Today, American Express is still reasonably cheap. The company trades for a price-to-earnings ratio of 12.9. The S&P 500 currently has a price-to-earnings ratio of around 25. American Express is trading for around half the valuation of the S&P 500.
The stock has a low payout ratio of just 21%. This makes additional dividend increases extremely likely, even if earnings don’t grow particularly quickly.
With that said, the company’s low payout ratio also gives it a relatively low dividend yield of 1.8%. For comparison, the S&P 500 has a dividend yield of 2.0%.
American Express makes a compelling purchase for value investors looking for stability and dividend growth. American Express’s 10 year historical average price-to-earnings ratio is 14. The company appears undervalued at current prices.
#18 – M&T Bank Corporation (MTB)
Dividend Yield: 2.0%
Price-to-Earnings Ratio: 19.2
Years of Steady or Rising Dividends: 25
Percent of Warren Buffett’s Portfolio: 0.5%
10 Year Book-Value-Per-Share Growth Rate: 5.7%
M&T Bank Corporation is a bank holding company with ~800 locations across the East Coast.
M&T Bank is one of the few banks that did not cut its dividend payments during the Great Recession of 2007 to 2009. M&T Bank Corporation has grown to become one of the 15 largest banks in the United States.
M&T Bank Corporation maintains higher than industry average returns-on-equity and returns-on assets.
Additionally, the company is highly regarded for its conservative nature. M&T Bank Corporation does not over extend itself by writing risky loans.
The company’s conservative nature has produced phenomenal results for long-term shareholders.
The company has produced 18.9% annualized total returns for shareholders since 1980, one of the highest of any stocks during that time period.
Rising interest rates are a catalyst for M&T Bank Corporation. Rising rates favor the company as they lead to a greater spread on interest earned from deposits versus interest paid.
Shares of M&T Bank Corporation currently trade for a price-to-earnings ratio of 19.2. The company appears to be either trading around fair value or somewhat overvalued at current prices.
M&T Bank Corporation’s future looks reasonably bright. The company’s stock has surged around 20% over
The post Warren Buffett’s Top 20 High Dividend Stocks – November 2016 appeared first on ValueWalk.
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