It's no secret that Warren Buffett likes dividends. The Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) CEO almost always invests in companies with reliable business models that spin off cash and return it to shareholders.
The Oracle of Omaha tends to target sectors such financials, industrials, energy, and consumer staples that generally share profits with investors, and dividends are often an indicator of a strong, sustainable business -- the kind of investment Buffett looks for.
Though Berkshire does not pay any dividends of its own, they help pad the company's balance sheet and fund its acquisitions, or "elephant hunting." In the spirit of the greatest investor, here are three high-yield Buffett stocks worth considering.
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A company in every kitchen
Jeremy Bowman (Kraft Heinz Company): Kraft Heinz Company (KHC 3.52%) is now Berkshire's biggest stock holding, though it became part of the portfolio in a roundabout way. Berkshire partnered with 3G Capital in 2013 to acquired Heinz outright for $23.3 billion, and in 2015 orchestrated a merger with Kraft, creating an archetypical Buffett stock. The food giant owns dozens of popular household brands, including Philadelphia cream cheese and Classico pasta sauce, in addition to its namesake products.
Buffett tends to favor strong brands and business models based on repeated purchases, much like Coca-Cola, another of his favorite stocks. Kraft Heinz today sports a 3.2% dividend, another reason it's a classic Buffett stock -- but the company's biggest future potential may come in the form of acquisitions.
Another 3G-Berkshire combination, Restaurant Brands International (QSR +0.09%), the parent of Burger King and Tim Horton's, took over Popeye's this year, and Kraft Heinz previously made an offer for Unilever, though it was rejected. Rumors have also swirled that the company could make a play for Colgate-Palmolive.
The stock has struggled this year, down 10% thus far as revenue has fallen, but EPS continues to climb and the pullback in the stock's price sets up a buying opportunity. If the company can find an elephant to slay, the stock is likely to surge as investors look forward to increased profits from consolidation.
Bankable returns
Danny Vena (Wells Fargo): Wells Fargo (WFC 2.12%) has dominated headlines recently, and not in a good way. The company has been in the spotlight for more than a year for creating 3.5 million fake bank accounts, silencing whistle-blowers, and inappropriately charging 570,000 auto loan customers for car insurance.
While these headline-grabbing issues might give you pause, the problems are likely short-term in nature and providing investors with a solid opportunity to be "greedy when others are fearful."
In spite of the ongoing drama, Wells Fargo remains one of Berkshire's largest holdings and the scandal hasn't changed how Warren Buffett feels about the long-term investment potential for the beleaguered bank. When asked if the scandal was enough to concern him about his ownership of shares, he replied, "Not in terms of the long-term investment, no. It's a terrific bank," said Buffett. "There were some things that were very wrong done there but they are being corrected."
Wells Fargo has a solid 2.89% yield and a healthy payout ratio of 41%, which leaves plenty of opportunity for potential future increases. The company also plans to return $11.5 billion to shareholders in the form of stock repurchases over the next four quarters.
In its most recent quarter, Wells Fargo reported $22.2 billion in revenue, similar to the prior year, while net income grew 5% year over year to $5.8 billion.
Investors will get the stability of owning the country's third largest bank by assets, which has continued the steady growth of both its deposits and loan balances.
Smart long-term moves
Daniel Miller (General Motors): If you're looking for phenomenal long-term stocks to own, starting with Warren Buffett's list of high-yield dividend stocks is a pretty smart choice! One of his highest-yield stocks might not otherwise be on your list, but it's definitely worth a second look: General Motors (GM 1.80%).
Make no mistake, light-vehicle sales are plateauing in the lucrative U.S. market this year. But management at GM is taking steps to alleviate concerns by cutting costs and exiting markets it has failed to generate profits in, like Europe. Despite slowing light-vehicle sales, GM just turned in an outstanding September sales result driven by booming demand for crossover vehicles.
And while GM capitalizes on a fresh lineup of SUVs and its bread-and-butter trucks to drive profitability in North America, it's also exiting or reducing its investment in the European operations of Opel/Vauxhall, India, East and South Africa, Russia, Chevrolet in Europe, and Australia. GM is instead focusing its efforts on the future of transportation as a service, autonomous vehicles, electrification, and the global growth of its booming Cadillac luxury brand. Those moves -- investing capital in growth objectives rather than less lucrative projects or markets -- have helped boost GM's return on invested capital from 16% in 2012 to 30% in 2016.
GM operates in a cyclical industry and will face challenges, there's no doubt about that. But the company offers investors a 3.5% dividend yield with a management team making smart moves for the long-term; Warren Buffett's moves to increase its stake in GM by 20% to represent 1.29% of the portfolio indicates at least one smart investor believes in Detroit's largest automaker.
