3 Dividend Ideas From Warren Buffett's Portfolio

Anjali is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Warren Buffett is widely realized as the most successful of 20th century. He is known for his value investing style and picking up good companies with stable businesses and good dividend yields. I scanned portfolio of his investment firm Berkshire Hathaway for dividend ideas and following three stocks look compelling.

<table> <tbody> <tr> <td> <p>Company Name</p> </td> <td> <p>Shares Held</p> </td> <td> <p>Dividend Yield</p> </td> <td> <p>Payout Ratio</p> </td> </tr> <tr> <td> <p><strong>The Procter & Gamble Company</strong> <span class="ticker" data-id="204975">(NYSE: <a href="http://caps.fool.com/Ticker/PG.aspx">PG</a>)</span></p> </td> <td> <p>59,602,203</p> </td> <td> <p>3.30%</p> </td> <td> <p>58.00%</p> </td> </tr> <tr> <td> <p><strong>Johnson & Johnson</strong> <span class="ticker" data-id="204142">(NYSE: <a href="http://caps.fool.com/Ticker/JNJ.aspx">JNJ</a>)</span></p> </td> <td> <p>10,333,128</p> </td> <td> <p>3.60%</p> </td> <td> <p>74.00%</p> </td> </tr> <tr> <td> <p><strong>ConocoPhillips</strong> <span class="ticker" data-id="203175">(NYSE: <a href="http://caps.fool.com/Ticker/COP.aspx">COP</a>)</span></p> </td> <td> <p>28,868,637</p> </td> <td> <p>4.70%</p> </td> <td> <p>31.00%</p> </td> </tr> </tbody> </table>

Here’s a look at each of these stocks in detail.

Procter & Gamble

Procter and Gamble’s shares are in an uptrend since July this year. With better-than-expected Q4 results, PG’s adjusted earnings of 82 cents per share came ahead of the Consensus Estimate of 77 cents as well as management guidance of 75–79 cents. 

With a $32B business in developing markets, P&G has the largest developing market exposure among US consumer goods. Developing markets constituted 40% of global sales for the company in 2012 and are likely to be the company’s growth engine for the long term. In addition to top line growth, company’s long-term strategies include a 5 year cost savings initiative of $10B. The company aims to reduce its overhead expenditures and marketing costs and generate savings through efficiency. The plan targets to reduce spending together with a workforce reduction of 5,700 by the end of 2013.

The company’s solid cash flow generation capabilities, cost savings, and productivity improvement allow for investment in acquisitions, product innovations, and brand development. P&G continues to focus on innovation and has launched several new products under the brands, Olay, Regenerist, Pantene, Head & Shoulders, among others. With 25 power brands each generating over $1B and seeing its capability to produce free cash flow productivity of over 90%, I recommend this as a buy.

Johnson & Johnson

At $188 billion market cap, J&J is the world’s largest pharmaceutical company. Its portfolio consists of many blockbuster products. With its relatively slow growth phase over, when many of its big products went generic (2008 – 2011), J&J is now poised to be on a high growth trajectory.

It strengthened its MD&D division with acquisition of Synthes, while its McNeil division is also expected to settle all quality issues and all products will be reintroduced in 2013.  

JNJ Pharma division will see solid revenue in next 4-5 years, as it has comparatively less drugs at the patent expiration stage, and has promising drugs including Invega, Sustenna, Zytiga, and Stelara. It is expected to launch 15 new drugs by 2016, resulting in incremental revenue of around $10 billion, which will become another catalyst for share prices.

With a credit rating of (AAA), it has easy access to credit, which it may utilize for another acquisition and share repurchase, providing support to share prices. In the short term it will benefit from recent strengthening of Euro /USD. I would recommend a buy for this stock.


ConocoPhillips reported a strong performance in Q2’12 with its EPS of $1.22/share exceeding Bloomberg’s consensus of $1.19/share. COP has a dividend yield of 4.70% which is one of the highest among its peers making it one of the best suited for dividend seekers.

After its dividend, another focal point of COP’s management has been Capex (led by project development initiatives). With strong asset base in APLNG, Malaysia, North Sea, Canadian SAGD, Permian and the US Shales (Eagle ford and Bakken) having an estimated worth of $75 billion, COP is expected to continue revenue generation in the long run. Also, as its focus shifts  from high tax regimes to low tax countries, it will help its EPS.

Another catalyst which is likely supports COP’s share upside is its plans of divestitures worth $8-10 billion by 2013. COP expects a $5/boe margin improvement from selling less profitable assets and investing in more profitable projects. I believe COP has the right approach, people, asset base, and financial flexibility to achieve its goals and augment shareholders value. I recommend this as a buy.

AnjaliPaliwal has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson and The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus