Warren Buffett, a strong advocate of dividend stocks, generated a dividend income of $6 billion for his Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) in the last year – a 20% increase from 2021, consistent with his preference for companies with consistent profits and strong fundamentals, who share a portion of their earnings with shareholders. Here are three must-have stocks that constitute 58% of Berkshire’s portfolio and offer long-term passive income opportunities.
Buffett’s affinity for Apple (NASDAQ: AAPL) is visible in Berkshire’s incredible $150 billion worth of Apple shares, making up 46% of its stock portfolio. During his recent annual meeting, Buffett praised Apple as a better business than any other it owns outright.
Apple is an industry leader and offers a dividend yield of 0.55%, having raised its dividend every year since 2012. Additionally, it aggressively buys back shares to improve the value of existing shares. Apple repurchased roughly 21% of split-adjusted share count in the last five years and authorized $90 billion in share repurchases.
Although Apple has a Price-to-Earnings (P/E) ratio of roughly 29, higher than its five-year average of 24.7, it has beaten the S&P 500 over the past year, three, five and ten years, making its high valuation justifiable.
Although Buffett hasn’t purchased any Coca-Cola (NYSE: KO) shares since 1994, it remains one of his favorite investments. Berkshire’s $1.3 billion investment has grown to $25 billion, providing Berkshire $704 million ($0.46 per share) from the dividend.
Today, Coca-Cola has a market cap of $263 billion, yielding almost 3%. Coca-Cola has raised its dividend annually for 61 consecutive years, making it a member of the exclusive Dividend Kings. Its consistency in generating positive free cash flow highlights its ability to maintain dividend payouts. For 2023, the company is expected to generate $9.5 billion in free cash flow, covering its $8 billion dividend payment.
Coca-Cola has net debt of $28 billion and is in a $3.4 billion tax dispute with the U.S. government, creating a bearish catalyst. Regardless, Coca-Cola remains an institutional favorite globally and should continue to dominate the soft drink category for years to come.
3. Kraft Heinz
Berkshire owns almost 26.5% of its common shares, and although Kraft Heinz (NASDAQ: KHC) has decreased in value, Buffett has maintained his position as it’s a profitable business, generating $2.4 billion in net income over the past year. In addition, Kraft Heinz pays a quarterly dividend of $0.40, earning an impressive yield of 4.2%. The company cut its dividend in 2019 to pay off its debt, lowering net debt from $29 billion in 2019 to $19 billion by 2023.
Although Buffett’s returns have fallen in his investment in Kraft Heinz, he still believes it is a fabulous business. Given that its products are staples in most households, Kraft Heinz’s profitability warrants a long-term investment, despite a questionable dividend history.
Are these Buffett dividend stocks buys now?
Dividend stocks are typically less volatile than growth stocks and can deliver outperformance in the long term. These three Warren Buffett stocks offer attractive dividend opportunities and have dominant positions in their respective sectors, making them excellent additions to any long-term portfolio.
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