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What Is Warren Buffett’s Top Dividend Stock?

By Matthew Frankel, CFP® - Oct 22, 2017 at 8:07AM

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Here are three of the Oracle of Omaha's dividend stocks that stand out from the rest.

Berkshire Hathaway (BRK.A 1.69%) (BRK.B 1.64%) has a portfolio of dozens of common stocks, many of which were hand-picked by CEO Warren Buffett himself. Buffett is a big fan of reliable dividends, so as you may expect, many of the stocks in the portfolio are dividend payers.

However, some have high dividend yields, some pay Berkshire more money overall than others, and some have excellent track records of dividends. Berkshire's "top dividend stock" depends on how you define that term.

In terms of dividend yield, the top dividend stock in the portfolio is real estate investment trust (REIT) Store Capital (STOR 3.11%). On the other hand, the stock that pays Berkshire the most money each quarter is Kraft Heinz (KHC 1.31%). Finally, the Buffett stock with the longest track record of dividend increases is Coca-Cola (KO 2.34%).

Warren Buffett in a grey suit.

Image Source: The Motley Fool.

Buffett's highest-yielding stock is a new addition to the portfolio

The highest-yielding stock in Berkshire's portfolio is also one of its newest investments. Real estate investment trust Store Capital pays a 4.8% dividend yield based on the current share price, and is the only REIT currently in Berkshire's portfolio.

Store Capital is a net-lease REIT specializing in single-tenant retail and entertainment properties. If you're not familiar, a "net lease" is a form of commercial lease where the tenant agrees to cover property taxes, insurance, and maintenance expenses -- pretty much all of the variable costs of property ownership. In addition, net leases typically have long initial terms -- 15 years or so -- which minimizes turnover risk.

In other words, all Store Capital has to do is put a tenant in place and enjoy years of predictable, growing income with minimal risk. This is a business model that has "Buffett" written all over it.

Berkshire's largest stock investment

Kraft Heinz is Berkshire Hathaway's single largest common stock investment. In fact, it's so big as a percentage of Kraft Heinz's outstanding shares (nearly 27%), Berkshire has to account for it differently than the rest of its stocks because of the amount of control it has over the company. In fact, Berkshire invested in Kraft Heinz along with 3G Capital, and the combined investment resulted in a majority stake. So it makes sense that it's also Berkshire's largest dividend payer.

Berkshire's Kraft Heinz stake generates $814 million per year in dividend income for the company. The merger between Kraft Foods and Heinz created many cost advantages and also created a massive portfolio of well-known brand names. In addition to its two flagship brands, Kraft Heinz also owns the Oscar Mayer, Maxwell House, and Lunchables brands, just to name a few.

Buffett is a big fan (and customer) of Coca-Cola

Technically speaking, Procter & Gamble is the Buffett stock with the longest streak of dividend increases. However, Berkshire has mostly exited its position in the company, and the remaining $29 million stake is quite negligible in a $183 billion stock portfolio.

As far as Berkshire stocks that make up a significant portion of the portfolio, few even come close to Coca-Cola's 54-year streak of annual dividend increases. With 400 million shares that represent a 9.4% stake in the beverage giant, Coca-Cola is one of Berkshire's largest stock investments, and one that Buffett has been a fan of for many years.

It's easy to see some of the Buffett-like qualities that Coca-Cola has. For one thing, it has one of the most valuable brands in the world that gives the company pricing power over rivals. According to Interbrand's 2017 rankings, Coca-Cola is the fourth most-valuable brand name in the world, worth nearly $70 billion.

In addition, Coca-Cola has an amazing distribution network that results in cost advantages, and Buffett is a firm believer in the company's products. In fact, he has said that about one-fourth of his daily calories come from Coca-Cola soft drinks.

Finally, Coca-Cola is a business that essentially runs itself at this point, something Buffett loves in long-term investments. Buffett has famously said that a "ham sandwich" could run Coca-Cola -- meaning that no matter who is in the CEO chair, the company should perform just fine.

Why Buffett loves dividends so much

Warren Buffett's portfolio has many dividend stocks, and he loves reliable dividend stocks for the same reasons most investors do -- they generate a consistent stream of income that can be used for whatever Berkshire needs the capital for at the time. Dividends can be reinvested to maximize the power of compound returns, or they can be used for income to cover expenses.

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Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
$64.38 (2.34%) $1.47
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$415,850.00 (1.69%) $6,900.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$277.50 (1.64%) $4.48
Kraft Heinz Intermediate Corporation II Stock Quote
Kraft Heinz Intermediate Corporation II
$38.64 (1.31%) $0.50
STORE Capital Corporation Stock Quote
STORE Capital Corporation
$26.89 (3.11%) $0.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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