1 Overlooked Secret to Warren Buffett's Phenomenal Success

Warren Buffett's company, Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) famously does not pay a dividend, but following Buffett's portfolio can lead you to some great dividend opportunities. Morgan Housel wrote a insightful piece on how to become a successful investor, including this gem from Buffett's partner Charlie Munger "carefully look at what the other great investors have done."

What's interesting when you study Buffett's portfolio is while he may not like paying dividends, he sure likes receiving them. Buffett's eight largest holdings all together pay Berkshire more than $1.8 Billion in dividends.

Keep this table in mind next time you hear someone saying something like "Buffett got it all wrong on IBM." Scale matters in total returns, IBM's share price has not done all that much in the short time Berkshire has owned its stake, but I think $258 million (and growing) yearly dividend income gives at least some comfort back in Omaha. 

Berkshire earns over $1 Billion each year from Wells Fargo and Coca Cola alone. That is almost $3m each day. Dividends add life to your portfolio. 

That is great for Berkshire, Buffett and their shareholders, but what about individual investors? Berkshire's top eight holdings is a good watchlist for high quality, dividend paying companies. The current S&P 500 dividend yield is 1.9%. All of the eight companies with the exception of American Express pay out above the market average. An equally weighted basket of the eight stocks would yield 2.4%. That is over 25% higher yield than the market average from a set of stocks that are higher quality as well.

Not only does this basket of eight Berkshire holding earn more quality income than the market, the income grows over time.

Many of Berkshire's largest holdings have excellent track records. Current income of $1.8 Billion is nice, but $1.8 Billion that grows every year is nicer still.

For the rest of us, we'll be starting off way smaller bases of capital and income, but investing is not a game where you get points for degree of difficult. Instead learn from the best. The basic approach of finding high quality companies that pay well covered and growing yields is something that an investor of any size can and should learn from.

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Gunnar Peterson

Safety, dividends, & growth in that order. Follow on Twitter @totalreturninv

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9/4/2015 4:00 PM
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Berkshire Hathaway CAPS Rating: *****