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Which of Buffett's Banks Has the Highest Dividend Yield?

By Bram Berkowitz - Updated Mar 7, 2021 at 9:56AM

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Buffett loves dividends and many banks offer attractive dividend yields. Let's see which of Buffett's bank holdings has the highest one.

The conglomerate Berkshire Hathaway (BRK.A -0.48%) (BRK.B -0.65%) doesn't pay a dividend, but its CEO Warren Buffett certainly loves investing in stocks that do. And several of those dividend payers are banks. Since the pandemic began, Buffett has gotten much more selective on bank stocks, unloading or trimming most of Berkshire's bank positions other than Bank of America (BAC -1.01%). But the Oracle of Omaha still owns several bank stocks, so let's take a look at which one has the best dividend yield and if it's a good choice for investors who like passive income.

Dividend yields 

Buffett owns a basket of financial stocks, but I am defining "banks" as those companies that have a bank charter. That leaves out payments companies Buffett owns like Visa and Mastercard, but includes some credit card companies that people may not have initially thought were banks, like American Express (AXP -0.53%) and Synchrony Financial (SYF 1.22%). I calculated the dividend yields by taking the total dividends these banks actually paid in 2020 and divided by their share price after the market closed on March 4.

Bank Dividend Yield
American Express (AXP -0.53%) 1.2%
Bank of America (BAC -1.01%) 2%
Bank of New York Mellon (BK -0.80%) 2.8%
Synchrony Financial (SYF 1.22%) 2.3%
U.S. Bancorp (USB -0.28%) 3.3%
Wells Fargo (WFC 0.45%) 3.3%

Data source: Bank financial statements. 

As you can see, U.S. Bancorp and Wells Fargo currently pay the highest dividend yields, each around 3.3%. Buffett will likely exit Wells Fargo over the next few quarters, as he has been trimming his position in the bank for a while now.

A photograph of investor Warren Buffett

Image source: 

Taking a closer look

One thing to note is that Wells Fargo cut its dividend by 80% last year due to struggling earnings and restrictions put in place by the Federal Reserve to preserve bank capital during the pandemic. In 2019, Wells Fargo made total dividend payments of $1.92 per common share. Because of the dividend cut in 2020, it made total dividend payments of $1.22 per share.

However, prior to cutting its dividend, Wells Fargo paid a quarterly dividend of $0.51 per share, which equates to an annualized dividend of $2.04 per common share. At the bank's current stock price of $37.11, that would give Wells Fargo a sizable dividend yield of 5.5%. Now, obviously if you follow Wells Fargo, the bank has been trading well below its pre-pandemic levels. While it may be a little while until it returns to this level, the bank traded at more than $53 per share heading into 2020. Even at that level, Wells Fargo would have a dividend yield of 3.8% if it got back to paying out annual dividends of $2.04, which would still put it at the top of Buffett's banks.

Given the amount of excess capital Wells Fargo has, I would expect to see the bank raise its dividend back to a more normal level once the Fed lifts restrictions that are currently in place.

Additionally, both Wells Fargo and U.S. Bancorp have pretty decent histories with their dividends. U.S. Bancorp cut its dividend during the Great Recession, but has since raised it every year since 2011, including in 2020 during the brunt of the pandemic. Meanwhile, after cutting its dividend during the Great Recession, Wells Fargo has also raised its dividend every year since 2011 up until 2020 when it had to cut it again. Perhaps I am giving Wells Fargo too much credit, but it continued to raise its dividend in recent years even while dealing with the fallout of its phony accounts scandal. And as I mentioned above, it had plenty of capital to cover its annual dividend payment in 2020 if the Fed's restrictions hadn't been in place.

Two great options

If you like dividends, I think both U.S. Bancorp and Wells Fargo are great investments right now. Wells Fargo may not be in Buffett's portfolio for much longer, but at its current price, you can get in on Wells Fargo and still see sufficient upside while enjoying a high dividend yield. U.S. Bancorp has long been a strong-performing bank and should continue to grow its dividend as well.


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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$413,844.10 (-0.48%) $-2,005.90
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$275.69 (-0.65%) $-1.81
Bank of America Corporation Stock Quote
Bank of America Corporation
$31.24 (-1.01%) $0.32
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$40.10 (0.45%) $0.18
U.S. Bancorp Stock Quote
U.S. Bancorp
$46.46 (-0.28%) $0.13
American Express Company Stock Quote
American Express Company
$139.65 (-0.53%) $0.75
The Bank of New York Mellon Corporation Stock Quote
The Bank of New York Mellon Corporation
$42.08 (-0.80%) $0.34
Synchrony Financial Stock Quote
Synchrony Financial
$28.94 (1.22%) $0.35

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

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