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Warren Buffett Just Bought These 3 High-Yield Dividend Stocks. Should You?

By Keith Speights - Mar 9, 2021 at 6:09AM

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The Oracle of Omaha could be right about these recent picks -- at least for income-seeking investors.

Warren Buffett's Berkshire Hathaway (BRK.A 1.28%) (BRK.B 1.25%) has never paid a dividend. But make no mistake about it: The billionaire investor really likes dividends. In fact, he highlighted the huge amounts that Berkshire receives in dividends from a couple of its top holdings in his most recent letter to shareholders. 

Berkshire's dividend payments will no doubt increase thanks to some of its recent purchases. Buffett just bought three high-yield dividend stocks. Here's which stocks he scooped up -- and whether or not they're good picks for you too.

Smiling Warren Buffett with people in the background

Image source: The Motley Fool.

AbbVie

Berkshire initiated a position in AbbVie (ABBV -0.92%) during the third quarter of 2020 with a purchase of nearly 21.3 million shares. Buffett appears to like the big drugmaker. Berkshire owned AbbVie over 25.5 million shares of the stock by the end of the fourth quarter. 

AbbVie's pedigree as a dividend stock is impressive. It's a Dividend Aristocrat with 49 consecutive years of dividend increases. Since being spun off from Abbott Labs in 2013, AbbVie has boosted its dividend by 225%. The dividend yield currently stands at nearly 4.9%. 

I think that many investors will, like Buffett, find AbbVie to be an attractive pick. In addition to its great dividend, the stock is cheap with shares trading at less than nine times expected earnings.

The company faces some headwinds beginning in 2023 with the entrance of biosimilars to its top-selling drug Humira in the U.S. market. However, it won't take long for AbbVie to recover. The company expects to deliver modest revenue growth in 2024 followed by high-single-digit growth throughout the rest of the decade. 

Chevron

Buffett hasn't been a big fan of the energy sector over the last couple of years. However, he seems to be warming up at least somewhat. In the fourth quarter, Berkshire opened a sizable position in Chevron (CVX 0.67%).

The oil and gas giant is also a Dividend Aristocrat with 33 consecutive years of dividend hikes. Chevron's dividend yield of over 4.9% is juicy enough to catch the eye of most income investors. 

There are other reasons investors might like Chevron in addition to its strong dividend. The energy sector could mount a strong comeback this year as the economy reopens. The increasing availability of COVID-19 vaccines combined with the recent stimulus package should help drive the recovery.

Chevron ranks as one of the best energy stocks around. The company continues to enjoy a solid financial position. It reduced capital spending even while positioning itself well for rising oil and gas prices with the well-timed acquisition of Noble Energy. Although the stock is likely to remain volatile, Chevron should still be a winner for investors over the next five-to-10 years. 

Verizon Communications

The biggest addition of all for Berkshire in Q4 was its initiation of a position in Verizon Communications (VZ -0.49%). Buffett and his team were so enthusiastic about the telecom giant that Berkshire bought around $9 billion worth of Verizon's shares. 

So why did Buffett buy Verizon? He almost certainly appreciated the company's dividend. Although Verizon isn't a Dividend Aristocrat, it has increased its dividend payout for 14 years running. The telecom leader's dividend yield of nearly 4.5% provides Berkshire a much better return than parking its money in money market accounts. 

Verizon also appears to be poised to be a leader in high-speed 5G networks. Buffett might not be an expert in autonomous vehicles and the Internet of Things, but he definitely understands the importance of a solid infrastructure. And Verizon's 5G infrastructure is massive and growing.

Even with its 5G prospects, I don't view Verizon as a great growth stock at this point. However, I think that it's a pretty good pick for income-seeking investors.

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Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$50.99 (-0.49%) $0.25
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$468,805.04 (1.28%) $5,915.04
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$312.50 (1.25%) $3.86
Chevron Corporation Stock Quote
Chevron Corporation
CVX
$176.59 (0.67%) $1.18
Abbott Laboratories Stock Quote
Abbott Laboratories
ABT
$114.87 (1.48%) $1.68
AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$150.57 (-0.92%) $-1.39

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

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