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Warren Buffett Just Gave Himself a $565 Million "Raise"

By Sean Williams - Feb 23, 2021 at 6:36AM

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Berkshire Hathaway's latest 13F points to a growing love of dividend stocks.

Warren Buffett is arguably the greatest investor alive today. Although Buffett's investing style may not resonate with the get-rich-quick ethos permeating the market in early 2021, few if any investors can match the Oracle of Omaha's long-term track record.

According to the 2020 annual shareholder letter from Berkshire Hathaway (BRK.A -0.15%)(BRK.B -0.17%), Buffett led his company to an average annual return of 20.3% over a 55-year stretch. To put this another way, Buffett has created over $400 billion in value for shareholders in over five decades. A $100 investment in Berkshire Hathaway stock on Dec. 31, 1964, would have been worth more than $2.7 million as of Dec. 31, 2019.

Because Buffett has been so successful for such a long period of time, investors closely monitor what he and his team buy and sell in Berkshire Hathaway's investment portfolio. Last week, the investing community got its latest look under the hood courtesy of Form 13F filings with the Securities and Exchange Commission.

A jubilant Warren Buffett at his company's annual shareholder meeting.

Berkshire Hathaway CEO, Warren Buffett. Image source: The Motley Fool.

The world's greatest investor just gave himself a handsome raise

While there were plenty of new purchases, additions, reductions, and sold-off positions, perhaps the biggest news of all is the $565 million "raise" Warren Buffett received. Allow me to explain.

In total, Berkshire Hathaway opened positions in or added to 10 stocks. Most of these new additions pay a hearty dividend. Opening a 146.7-million-share stake in telecom giant Verizon (VZ 1.10%) and a 48.5-million-share position in integrated oil and gas company Chevron (CVX 1.60%) will generate a respective $368.3 million and $250.3 million in annual dividend income.

Additions to pharmaceutical stocks AbbVie (ABBV 1.91%), Merck, and Bristol Myers Squibb will also bring in an extra $45 million annually in combined dividend payouts. Altogether, Berkshire's fourth-quarter purchases provide a dividend income lift of $682,384,519.

At the same time, Buffett and his team sold off or reduced 11 positions, nine of which paid a dividend. But the pared-down stakes were either small or offered a relatively low yield. For example, slashing its remaining stake in Wells Fargo by 58% is only going to cost Buffett's company $30 million in annual dividend income. Likewise, selling over 57 million shares of Apple reduces payouts by $46.9 million. On a combined basis, these 11 sales reduce dividend income by $117,353,119.

Break out the handy-dandy calculator, and you'll see that Berkshire Hathaway's Q4 buying and selling equates to a $565,031,400 increase in annual dividend income. This likely boosts the company's annual dividend income to more than $4.3 billion.

A businessman quickly counting a stack of one hundred dollar bills in his hands.

Image source: Getty Images.

Here's why Buffett is smart to pack his portfolio with dividend stocks

Despite the market being obsessed with growth stocks of late, Buffett's persistence in sticking with dividend stocks should pay off for his company and its shareholders. That's because dividend stocks offer an abundance of advantages.

Usually, only profitable businesses with time-tested operating models pay dividends. A company and its board wouldn't willingly share a percentage of its profits with investors if it didn't foresee ongoing growth and profit potential.

For example, even though growth at Verizon has slowed, it benefits immensely from the predictability of its wireless contracts and the high margins associated with data consumption and other ancillary services, such as broadband internet. Investors don't have to worry about whether Verizon will be there when they wake up the following morning.

Dividend stocks also act as a hedge against inevitable stock market crashes and corrections. Though it might seem like the stock market does nothing but go up, the benchmark S&P 500 has lost at least 10% of its value 38 times over the past 71 years -- that's less than once every 1.9 years.

For instance, oil stocks have struggled mightily over the past decade. Roughly 10 years ago, West Texas Intermediate was going for $100 a barrel. Today, the same barrel of WTI crude is being sold for about $60. Not surprisingly, Chevron's nominal return is negative 3% over the trailing decade. Add in its hearty dividend, though, and investors have gained 44% over the past decade. Dividend payouts can help hedge against industry/market disruption and keep investors from making rash decisions.

Plants sprouting from small piles of soil placed atop ascending stacks of coins.

Image source: Getty Images.

Finally, dividend stocks are outperformers. In 2013, J.P. Morgan Asset Management released a report that compared the performance of stocks that initiated and grew their payout between 1972 and 2012 to stocks that paid no dividend. Over this four-decade span, dividend stocks averaged an annual return of 9.5%, which was nearly 500% better than the meager 1.6% average annual return from stocks that didn't pay a dividend.

As a case in point, drug developer AbbVie, which Buffett's company beefed up its position in during the fourth quarter, has exactly tripled (+200%) over the past 10 years. Factor in the company's juicy dividend, which has been pumped up by top-selling anti-inflammatory blockbuster therapy Humira, and the company's trailing 10-year return jumps to 320%. That's 94 percentage points better than the broad-based S&P 500 over the same time frame.

Dividend stocks are long-term game-changers for patient investors, and Warren Buffett knows it.

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Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$51.24 (1.10%) $0.56
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$462,890.00 (-0.15%) $-716.49
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$308.64 (-0.17%) $0.53
Chevron Corporation Stock Quote
Chevron Corporation
$175.41 (1.60%) $2.77
AbbVie Inc. Stock Quote
AbbVie Inc.
$151.96 (1.91%) $2.85

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

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