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This Is Warren Buffett's Best Dividend Stock by Far

By Keith Speights - Jun 20, 2021 at 5:55AM

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There's a lot to like with this Buffett stock.

It might seem that Warren Buffett doesn't like dividends. After all, Berkshire Hathaway (BRK.A 0.55%) (BRK.B 0.42%) has never paid a dividend. Even with the company sitting on a cash stockpile of $145 billion, the legendary investor still hasn't hinted at any inclination to use some of the money to pay shareholders via dividends.

However, Buffett actually likes dividends quite a bit. There are more stocks in Berkshire's portfolio that pay dividends than ones that don't. Admittedly, some of them pay out measly dividends. However, others offer juicy dividends that most income investors would love.

What's the best dividend stock of all among Berkshire's holdings? In my view, there's one stock that clearly stands out.

Warren Buffett with people in the background.

Image source: The Motley Fool.

A coronation on the way

AbbVie (ABBV -0.22%) is only one dividend hike away from becoming a Dividend King. In case you're not familiar with the hierarchy of dividend nobility, Dividend Kings are members of the S&P 500 with 50 or more consecutive dividend increases. AbbVie has increased its dividend for 49 years in a row. That qualifies the stock as a Dividend Aristocrat. The threshold for that status is 25 consecutive dividend hikes.

Will AbbVie be able to keep its streak alive to receive a dividend coronation? I think it's a near certainty. The company used nearly $8.3 billion to pay dividends last year. It expects to make more than $13 billion in profit in 2021. 

Not only does AbbVie have a great track record of dividend increases, but it also offers a yield that just might make some income-seeking investors drool. As of now, the drugmaker's dividend yield stands at 4.5%. 

The yield came pretty close to hitting 6% in October 2020. However, it has fallen since then with AbbVie's shares rising more than 40%. That's a great "problem" to have.

But what about...

I believe that AbbVie is Buffett's best dividend stock, by far. However, I realize that there are a few other worthy contenders for the honor.

You might wonder why I didn't select Johnson & Johnson (JNJ 0.48%). After all, the healthcare giant is already a Dividend King with 59 years of consecutive dividend increases under its belt. I do like J&J, but its dividend yield doesn't come close to AbbVie's.

What about Chevron (CVX -1.90%)? Its dividend yields nearly 4.9%. That's certainly higher than AbbVie's yield. Chevron is also a Dividend Aristocrat with 34 years in a row of dividend hikes. I think that Chevron is a good pick for income investors.

My view, though, is that AbbVie's long-term growth prospects are much better than Chevron's. Fossil fuels might not go the way of the dinosaur over the next decade, but they're likely to gradually diminish in importance.

Buffett himself mentioned in his most recent letter to shareholders that Berkshire has averaged a whopping $775 million annually from Apple's (AAPL 0.63%) dividend payments. As impressive as that number is, though, it's due to Berkshire's massive stake in the technology leader. Apple's dividend yield of less than 1% isn't so impressive.

Buffett's blunder

I don't think there's any question that AbbVie offers an attractive dividend. It's also a relative bargain. Shares currently trade at only 9.3 times expected earnings. That's significantly cheaper than the forward earnings multiples for Apple, Chevron, Johnson & Johnson, and even Berkshire itself.

With AbbVie's great story, you might expect that Buffett would be scooping up more shares of the healthcare stock. Instead, Berkshire sold around 10% of its stake in AbbVie in the latest quarter.

I'm not sure why this decision was made. Maybe it's because AbbVie's overall revenue will almost certainly dip in 2023 with its top-selling drug Humira facing biosimilar competition in the U.S. However, AbbVie's sales should quickly rebound in 2024. The company projects strong revenue growth through the rest of the decade, thanks to several newer drugs with fast-climbing sales.

I think Buffett made an uncharacteristic blunder by selling some of Berkshire's AbbVie shares. That's a mistake that other investors don't have to make.

Keith Speights owns shares of AbbVie, Apple, Berkshire Hathaway (B shares), and Chevron. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AbbVie Inc. Stock Quote
AbbVie Inc.
$142.29 (-0.22%) $0.31
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$455,170.00 (0.55%) $2,472.75
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$302.82 (0.42%) $1.27
Apple Inc. Stock Quote
Apple Inc.
$173.19 (0.63%) $1.09
Johnson & Johnson Stock Quote
Johnson & Johnson
$166.09 (0.48%) $0.79
Chevron Corporation Stock Quote
Chevron Corporation
$156.81 (-1.90%) $-3.04

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

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