3 Dividend Paying Companies That Buffett Loves
Karin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Dividend-paying stocks are still some of the most popular companies on the market today. They’re great for buy-and-hold investors as well as investors interested in a steady stream of income. The attraction of strong growth potential plus solid cash flow is becoming attractive to more and more of the less-traditional investors as well.
Warren Buffett is one of the most-respected investors in the world, and many buy-and-hold types look to him as a guru. His history of buying and holding onto traditional consumer companies for long periods of time, as well as his general avoidance of most high-tech names, make his methods easy to mimic.
Buffett holds a number of dividend-paying companies, but there are three in particular that make up a large portion of his overall stock portfolio. As of June 30, Buffett had 37 positions in his portfolio, of which many do pay dividends, but his three largest positions all pay dividends.
Buffett’s top portfolio holding is also his top dividend-paying position – Coca-Cola (NYSE: KO). Buffett’s 400 million shares, currently valued at over $15 billion, total nearly 9% of all outstanding shares of the company and make up 21% of Buffett’s portfolio. The stock is currently selling for $38 and yields 2.7%. Coca-Cola is one of the dividend aristocrats, with a 49-year history of consistently paying and raising dividends, and a 5-year annual dividend growth rate of 8.5%.
Buffett’s next largest holding is in Wells Fargo (NYSE: WFC) with 411 million shares, valued at almost $14 billion, and accounting for 8% of shares outstanding. The WFC position is 18.5% of Buffett’s portfolio, is currently trading at $34, and is yielding 2.5%. Wells Fargo is not a dividend aristocrat, since the company was forced to cut the dividend drastically in 2009 in the wake of the financial crisis; but it has been working to increase the dividend, and its 5-year annualized dividend growth rate is a hefty 18.55%.
IBM (NYSE: IBM) is the third-largest holding in Buffett’s portfolio; he has 66 million shares totaling $13 billion, 6% of the outstanding shares of the company, and 17.5% of Buffett’s portfolio. Although IBM’s yield is a bit low, at 1.5%, it has been consistently paying and raising its dividends for 16 years, and the average 5-year annual dividend growth rate is a juicy 18.10%.
Buffett increased his holdings of both Wells Fargo and IBM in the 2nd quarter of 2012, which indicates his firm’s conviction that these are companies worth holding onto. And together, these 3 companies make up nearly 60% of his entire stock portfolio, showing his confidence in these companies.
My personal criteria for adding a company to my Dividend Growth Portfolio includes 3 factors: yield over 2.5%, history of consistently paying and raising dividends for over 10 years, and a 5-year annualized dividend growth rate of over 7%. Based on these criteria, Coca-Cola makes it onto my list, but Wells Fargo and IBM do not. If IBM continues to make significant dividend increases, it may increase its yield enough to make it onto my screen again in the future. Wells Fargo, however, must demonstrate another 8 years of paying and increasing its dividend before I will take another look.
Regardless of my personal criteria, you can’t go wrong by imitating some of Buffett’s moves, and based on his portfolio weighting, these three companies look to be some of his absolute favorites. Consider whether or not they belong in your portfolio, too.
khern0203 has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines and Wells Fargo & Company. Motley Fool newsletter services recommend The Coca-Cola Company and Wells Fargo & 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.