Is there any investor who doesn't relish being paid a dividend? Warren Buffett, chairman and CEO of the mega-conglomerate Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B), sure does. Berkshire, which essentially serves as Buffett's investment vehicle, takes in around $900 million in shareholder distributions every quarter.
Berkshire's portfolio is sprinkled with Dividend Aristocrats, the very small group of stocks that have raised their distributions at least once per year for a minimum of 25 years in a row. Here's a look at two Aristocratic mainstays in the Berkshire portfolio.
We're almost at the 30-year anniversary of Buffett's initial investment in beverage superpower Coca-Cola (NYSE:KO). Berkshire has not only been a decades-long owner of the company's stock, but it's one of the top institutional shareholders, holding just under 10%. That's an enormous stake, as Coke's total market capitalization currently stands at nearly $200 billion.
One of Buffett's longtime investing criteria is a simple business model; another is the presence of a nearly insurmountable competitive advantage. Coke is a straightforward business that rests on a solid foundation of leading beverage assets such as its namesake brand, Sprite, Minute Maid, and many others.
As for a strong competitive advantage, Buffett described Coke's position in his inimitable, folksy way: "If you gave me $100 billion and said to take away the soft drink leadership of Coca-Cola in the world, I'd give it back to you and say it can't be done."
Buffett, who consumes about a six-pack of Coke every day, has never sold a share of his favorite drink-maker, even as the company's performance has slipped recently due to healthier food and beverage trends.
Regardless of declining soda sales, Coke continues to generate gobs of cash -- and share plenty of it with shareholders. The company's dividend yield of 3.2% is generous compared to the average of about 1.9% among S&P 500 companies. Said distribution has been lifted annually for 55 years in a row.
At the current annual dividend rate of $1.48 per share, Berkshire is getting $592 million in dividends from Coke every year. That's a big boon to any portfolio -- even a Berkshire-sized one.
Procter & Gamble
Berkshire's stake in consumer goods giant Procter & Gamble (NYSE:PG) isn't what it once was, but that's not because the master investor and his team lost faith in the company. Rather, in 2014, they exchanged their holding to acquire one of P&G's top brands, Duracell batteries.
Before the deal, Berkshire held 52.5 million shares of Procter & Gamble; it now owns 315,400. But even at that dramatically reduced number, the stake has plenty of value: All told, it's worth around $27.2 million at the current stock price.
Berkshire originally entered Procter & Gamble through another swap, effected in 2005. It held a sizable position in Gillette during its days as a publicly traded company. When Procter & Gamble bought the razor maker in 2005, Berkshire instantly notched a cool $645 million profit on its stake. Buffett characterized this as a "dream deal," and he remained a major Procter & Gamble shareholder until the Duracell opportunity presented itself.
These days, although Berkshire's Procter & Gamble holding is comparatively small, it still pays sweet dividend income for Buffett and company. At an annual rate of of $2.76 per share, which currently yields 3.2% like Coke, Procter & Gamble pays Berkshire a gross amount of over $840,000 per year.
Procter & Gamble is one of the most aristocratic of the Dividend Aristocrats: Its dividend-raising streak has continued uninterrupted for 61 years. Only three other stocks have longer track records.
Joining the Aristocracy
The Dividend Aristocrats are an elite group in the income investing world, and Coke and Procter & Gamble are two elite-of-the-elite stocks because of their long track records of paying growing dividends. They should always be on an income investor's radar.
That said, fundamental business factors should be a primary consideration when weighing any stock investment, no matter how impressive a company's dividend history may be.