Warren Buffett is well-known as an illustrious investor who values patience and consistently purchases high-quality firms at reasonable costs. The large dividend payments, however, are a key component of Berkshire Hathaway’s profitability.
Over the past year, the Oracle of Omaha has amassed nearly $3.5 billion in dividend income from just four of her stock holdings.
Buffett has perfected the art of dividend stock investing by concentrating on companies with strong leadership economics and long-term competitive advantages.
Dividend income for Berkshire Hathaway is expected to be slightly less than $6 billion in the coming year. However, just four excellent stocks will contribute approximately 60% of that.
In the coming 12 months, Warren Buffett’s four favorite dividend stocks will provide approximately $3.5 billion in passive income. Let’s take a look:
#1. Bank of America – $991 Million
Bank of America (NYSE: BAC), the second-largest stake of Berkshire Hathaway, ranks first in dividend income. With more than a billion shares in BofA, Buffett stands to gain over $992 million in dividends per year going ahead.
Bank stocks have long been a favorite of the Oracle due to the cyclical nature of the industry and the consistent demand for financial services. While recessions occur seldom, expansions last for much longer. Instead of naively trying to time recessions, Buffett has acquired top-tier banking executives like BofA to ride out convoluted booms.
Beyond macroeconomic tailwinds, however, among the big US banks, BofA is the most interest-rate sensitive. Bank of America’s net interest income has increased by billions per quarter due to the Fed’s quick rate hikes over the last year.
In order to reduce costs over time, BofA has also digitalized its platform through the use of mobile and web capabilities. One can easily understand why Buffett is captivated by BofA stock: the company’s formidable branding, rate-driven profit growth, and tech-focused efficiency gains.
#2. Apple – $879 Million
Apple (NASDAQ: AAPL) would naturally lead Buffett’s dividend haul, given its weight as Berkshire Hathaway’s largest stake. With roughly 915 million Apple shares under its ownership, Berkshire receives $879 million in dividend payments each year.
Both Apple’s unparalleled brand loyalty and its innovative spirit propel the company’s capital return prowess. As of 2023, Apple has the highest brand value in the world, says Kantar. On the other hand, for the past eleven years running, Interbrand has named it the “best brand” in the world.
Beyond just being the most dominant brand in the industry, Apple’s innovation is being spearheaded by CEO Tim Cook through the company’s smartphones, tablets, and shift toward subscriptions and services.
The future of phones and other developing categories, such as augmented reality, present Apple with plenty catalysts to continue driving profitability, shareholder returns, and Buffett’s pocket.
#3. Occidental Petroleum – $843 Million
Buffett has lately invested heavily in oil major Occidental Petroleum (NYSE: OXY), but he has not yet held it for ten years like Apple and Coca-Cola. Occidental generates about $843 million in yearly dividends and high-yield preferred share income for Berkshire Hathaway.
Oil prices will remain high for a long time, according to Buffett, who cites underinvestment and geopolitical tensions with Russia as reasons. Occidental is highly exposed to fluctuations in oil prices because the majority of its revenue comes from drilling operations.
Berkshire receives $679 million yearly from more than $8 billion worth of 8% preferred stock, in addition to $164 million from dividends on Occidental common stock. Occidental’s unusual partnership with Berkshire has transformed it into one of the market’s top dividend payers, which is highly unusual for an oil producer.
For as long as petroleum prices remain profitable, Berkshire will keep getting checks from Occidental.
More Read
#4. Coca-Cola – $736 Million
Coca-Cola (NYSE: KO), the beverage giant and Berkshire Hathaway’s longest-standing stock investment at 35 years and counting, rounds out Buffett’s top four revenue sources. Every year, Buffett receives a dividend of $736 million from his 970 million+ shares of Coke.
Coke’s inclusion is a result of its 61-year dividend increase run, successful branding, and unmatched worldwide diversification. Even in times of economic turmoil, Coca-Cola continues to have stable demand as a consumer defensive label.
Its portfolio of brands valued at $1 billion or more reaches a wide range of consumers in almost every country on the planet (with the exception of Russia, North Korea, and Cuba). No matter the obstacles, Coke’s cash cows have shown to be resilient for decades.
Berkshire Hathaway’s dividend yield on cost for Coca-Cola is insanely close to 60%, even though the company has a relatively low cost basis of about $3 per share. Put another way, the dividends alone pay for the initial investment every two years!
When you add together all of its top payers, you can see why Buffett stresses the importance of dividend compounding over the long run.
The Master of Moats Has Assembled the Ultimate Dividend Portfolio
Warren Buffett has built an exceptional dividend portfolio that includes leading financial institutions, tech companies, and consumer defensive classics. Berkshire Hathaway anticipates a projected annual dividend income of about $3.5 billion, generated by just four super-strong equities.
Do the math: that’s nearly $9.5 million in daily passive income! Daily dividends for Buffett should keep climbing as long as companies like Apple and Occidental Petroleum have plenty of room to keep increasing their distributions.
It is clear that the Oracle of Omaha has mastered the skill of purchasing exceptional businesses at reasonable rates and then letting compound interest do its magic. Those seeking income who want to create long-term, high-quality portfolios would do well to study Warren Buffett’s dividend strategy.