The 10 Highest-Yielding Buffett Stocks

Berkshire Hathaway's (NYSE: BRK-B  ) Warren Buffett is widely regarded as the greatest investor of our time. But most people don't realize that dividend investing makes up a large part of his investments. Some of his most sizable holdings pay big yields, which gives the Oracle of Omaha cash to invest in good times and in bad.

Owning dividend companies is a hallmark of Buffett's. They fall straight in line with his strategy of owning fundamentally strong companies whose business models provide inherent advantages against competitors -- otherwise known as "moats." Such companies can consistently reinvest cash flow at high rates of return (as revealed through strong returns on equity) and pay out excess cash flow to shareholders as dividends. Only fundamentally robust and well-managed companies can afford to give their shareholders cash every year.

In which companies does Buffett invest? Well, since Buffett has more than $100 million in assets under management, he's required to detail his equity portfolio in a document filed with the SEC. Publicly available through the SEC's EDGAR website, this 13-F form lets us see his holdings.

Here are Buffett's highest yielders:

Company

Yield

Return On Equity (TTM)

GlaxoSmithKline (NYSE: GSK  ) 5.2% 41.4%
Kraft (NYSE: KFT  ) 3.7% 9.3%
Johnson & Johnson (NYSE: JNJ  ) 3.5% 25.3%
Sanofi-Aventis 3.4% 12.5%
ConocoPhilips (NYSE: COP  ) 3.3% 16.9%
M&T Bank 3.2% 8.4%
Procter & Gamble (NYSE: PG  ) 3.0% 17.0%
General Electric 3% 10.2%
Coca-Cola (NYSE: KO  ) 2.8% 29.2%
United Parcel Service 2.6% 40.5%

Source: Yahoo! Finance.

Let's take a closer look at what's on the list.

Pharma
Buffett bought GlaxoSmithKline, Sanofi-Aventis, and Johnson & Johnson as concerns grew over their dwindling drug pipelines. Their cash hoards, distribution networks, and experience working with the FDA are invaluable moats, allowing them to ward off new upstarts and continually post large profits.

Energy
Buffett has sold a chunk -- but not all -- of what he has called "a major mistake of commission": his investment in ConocoPhillips. He bought in before oil prices fell in 2008. While ConocoPhillips shares have risen in the past year, they remain far below the levels they reached in 2007 and 2008.

Consumer stocks
Buffett has been slowly selling shares of both Kraft and Procter & Gamble. Ever since Kraft acquired Cadbury over Buffett's protest, the Oracle's been whittling down his stake in the processed-food giant. With Procter & Gamble, his motives for selling are thus far unclear.

Motley Fool Pro also owns shares of Procter & Gamble, which our team believes may be the best consumer-staples company in the world. (International markets make up 60% of P&G's sales.) P&G boasts many of the most recognizable household brands, and it's paid a dividend every year since 1890 without interruption.

Coca-Cola makes up nearly 20% of Buffett's equity holdings, and the soda syrup sultan has been paying out increasing dividends for years. From its dividends alone, Buffett now earns one-third of his original investment in this longtime holding each year!

Your next step
In each case, Buffett's dividend-paying stocks are strong companies with wide moats, allowing them to pay dividends for years. If you hold on to strong dividend companies for years, you, too, can turn an initial investment into a small fortune.

Like Buffett, Jeff Fisher and the experts on the Motley Fool Pro team are focused on fundamentally strong companies that return value to shareholders year after year. These include GlaxoSmithKline and Procter & Gamble, both of which the service holds in its $1.4 million real-money portfolio. The team scours the market to find dividend stocks and other investments that perform well even in a volatile market. Then they take their strategy one step further, using tools like options to pick up investments at bargain prices, or produce income even as stock prices stagnate.

If you'd like to learn more about the other strategies our Pro team is using to grow their portfolio, simply enter your email address in the box below. They'll be happy to send you "5 Pro Strategies for 2011," a free report with all the details on how you can begin putting these strategies to use in your own portfolio.

Berkshire Hathaway and Coca-Cola are Motley Fool Inside Value selections. Berkshire Hathaway is a Motley Fool Stock Advisor pick. GlaxoSmithKline is a Motley Fool Global Gains choice. Johnson & Johnson, Coca-Cola, Procter & Gamble, and United Parcel Service are Motley Fool Income Investor selections. The Fool owns shares of and has written covered calls on GlaxoSmithKline. The Fool owns shares of and has written covered calls on Procter & Gamble. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Berkshire Hathaway, Coca-Cola, Johnson & Johnson, and United Parcel Service. Motley Fool Alpha owns shares of Johnson & Johnson.

Dan Dzombak doesn't own shares in any of the companies mentioned in this article. 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.


Read/Post Comments (11) | Recommend This Article (68)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 11, 2011, at 4:54 PM, TEBuddy wrote:

    You cite no good reason that he would sell off Kraft, only that he is petty? What was the reason to oppose the board on the acquisition?

    I think Buffet will be losing out on this one, they don't need his money, Kraft is bigger than Buffet and will provide slow growth and dividends consistently with stability.

  • Report this Comment On January 11, 2011, at 5:38 PM, dargus wrote:

    Buffett isn't being petty, he thought the acquisition was not a good deal. You wouldn't sell a stock if you thought the management made a boneheaded move which could impact your future assumptions about growth and profitability?

  • Report this Comment On January 11, 2011, at 5:49 PM, Fundament wrote:

    Here are Warrens Buffetts Top30 positions and his latest movements as of September 30, 2010:

    http://long-term-investments.blogspot.com/2010/11/warren-buf...

    The sector allocation was as follows:

    Consumer Goods: 38.9 %

    Financials: 40.9%

    Consumer Services: 6.7%

    Health Care: 6.1%

    Oil & Gas: 3.5%

    Industrials: 2.9%

    Utilities: 0.3%

  • Report this Comment On January 11, 2011, at 6:36 PM, TEBuddy wrote:

    My point is the article tries to make some point, but is missing useful information. I happen to believe Buffet is wrong if he is selling because of the acquisition.

    This article appears to make a stab at Buffets wisdom is selling off P&G. Why is Buffet selling these good stocks? This author has no answer.

  • Report this Comment On January 11, 2011, at 7:37 PM, natschool wrote:

    What does Buffet do with his dividends? Does he reinvest them like we are all told to do or is he so good at picking investments, he thinks he can do better by re-deploying the money elsewhere? Also, does he consider his yield on cost rather than current yield?

  • Report this Comment On January 11, 2011, at 8:58 PM, Merton123 wrote:

    Warren Buffet talks a lot about "opportunity cost" in his letters to shareholders. A opportunity cost is the cost of the next best choice. He may have perceived a better investment then Kraft and therefore is slowly unwinding his position in the company. I also believe that Kraft decision to buy Cadbury was a good choice to facilitate market penetration into Africa. I don't know the details so can not make any comments about if Kraft paid to much for Cadbury. I agree with Warren Buffet that the opportunity cost associated with owning Kraft at current prices would also make me look else where to invest. I find it interesting to see how many of the DOW 30 components have found there way into Warren Buffet portfolio. I count six companies as being Dow 30 components out of the ten companies listed as being in his portfolio.

  • Report this Comment On January 11, 2011, at 10:22 PM, TMFDanDzombak wrote:

    @TEBuddy Here's an article summarizing Buffett's points on why he opposed the Kraft buyout of Cadbury

    http://www.fool.com/investing/general/2010/01/06/buffett-cal...

  • Report this Comment On January 11, 2011, at 11:41 PM, AlyByrd wrote:

    Kraft is SO last millennium. People are becoming more health aware, and Kraft (cigarettes and all) are simply... not that. Growth is in organic and sustainable food service and products-- maybe Buffet with his voracious reading appetite is reading the chalk on the board.

  • Report this Comment On January 12, 2011, at 1:36 PM, darroj wrote:

    AlyByrd - cigarettes have nothing to do with KFT. MO spun KFT off a while back, they are entirely separate now...

  • Report this Comment On January 12, 2011, at 2:59 PM, nickgd wrote:

    * JNJ has div. increased annually 9 of the past 10 yrs. since 2001. The one yr. it did not; is still good div.

    ** brk, purchases first the bond; conv. sec.; common stock; preferred stock for a min. of 10 yr. term in order to increase ROI.

    *** They do not like heavily intensive cap. expend. co's; but cap. expend. can be written off in 2011 and part of 2012.

    brk, owns Shaw Ind. A $1 B theme pk. sports complex is being planned for NW GA.; and NW of Atl. which will open in 10 yrs. around 2021 w/ artificial turf, and 7,500+ seat stadium and 28 fields...

    Read Buffetology.

    Chill factor in Metro ATL. will drop to 3* F TH. morn. Jan. 13, 2011 Snow & Ice all over.

    ATL. canceled 2,000 flights on TU.; but Int'l. airport was open, and 4 of 5 runways operating on Wed. before noon.

    AL. not only has 2 recent Nat'l. Champs. in football; it is loaded w/ Methane gas in Black Warrior Basin coal beds of Appal. Mtns. Chain.

    Before The '10 Census there were 53+ M residents in 6 SE US States. Over 37+ M in FL., GA., and AL.

    Alabama; and NW GA. have room to grow at affordable prices, and taxes...

    Things make sense to me now ...

  • Report this Comment On February 09, 2011, at 1:59 PM, vaidybala wrote:

    The ratio of ROE to Yield could be a simple measure to find if it is worth investing. A range from 5 to 15 for yields of about 4%/year beating inflation seems acceptable metric for individual investors who like a little bit of growth and cash now.

    An idea to think about.

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