Warren Buffett made headlines on Thursday after Berkshire Hathaway (BRK.A +0.41%)(BRK.B +0.43%) announced a roughly $4.2 billion stake in HP. Buffett has been on a buying spree as of late -- adding to Berkshire's position in Occidental Petroleum and buying insurance company Alleghany for around $11.6 billion.
Berkshire has a lot of attractive holdings, but four dividend stocks that stand out above the rest are United Parcel Service (UPS -0.93%), Chevron (CVX -0.20%), Procter & Gamble (PG +0.67%), and Coca-Cola (KO -0.52%). Here's what makes each stock a great buy now.
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1. There's never been a better time to own UPS
UPS and FedEx (FDX +1.15%) stock are both down over 13% since March 29 despite both companies continuing to report excellent results. The issue isn't how either company has done but rather where it could be headed from here.
UPS and FedEx have been successful in raising prices to combat inflation. But FedEx's commentary during its third-quarter fiscal 2022 earnings call on March 18 was a bit concerning. "Several macroeconomic forces, including the tragic conflict in Ukraine, uncertainty around the pandemic, a tight labor market, supply chain disruptions, high energy prices, and inflationary pressure have dampened the current GDP outlook globally and for the United States," said Brie Carere, FedEx Chief Marketing and Communications Officer during the recent earnings call.
However, UPS posted record-high revenue and a high operating margin throughout 2021, which allowed it to raise its dividend by a staggering 49%. UPS grew its business in 2020 and 2021 while many other industrial companies were struggling. It expects growth to slow in 2022 but continues to see strength in e-commerce and its international segment. With a price-to-earnings (P/E) ratio of just 13.1 and a dividend yield of 3.1%, UPS is simply too good to pass up.
NYSE: UPS
Key Data Points
2. Chevron is mostly protected from downside risk
Like the rest of the oil majors, Chevron is having an excellent year as high oil and natural gas prices provide a much-needed reprieve for energy companies that got taken to the cleaners during the height of the COVID-19 pandemic in 2020. Many exploration and production companies have more exposure to oil and gas upside than Chevron. But what Chevron has that many of its competitors don't is an excellent balance sheet, a low cost of production, and a track record for paying and raising its dividend. Given its solid fundamentals, it's no wonder why Chevron is the 11th largest holding in Berkshire's portfolio.
3. Procter & Gamble may just be the safest stock on the planet
Like UPS, Procter & Gamble isn't immune to inflation. But it has found ways to pass along those costs to customers. Sophisticated supply chains have helped Procter & Gamble retain high gross margins, while other consumer staple companies have been more affected by supply chain disruptions.
Procter & Gamble is not an inexpensive stock or a fast-growing company. And it isn't a great value either, with shares hovering around a 52-week high and a P/E ratio of 28.1. However, P&G is a battle-tested business that has done well during periods of high inflation and even recessions.
Like other defensive stocks, such as Walmart or Costco Wholesale, P&G stock deserves a premium price because its business should continue to do well even if the macroeconomic situation worsens. P&G has paid and raised its annual dividend for over 65 consecutive years, making it one of the longest-tenured Dividend Kings. A Dividend King is an S&P 500 component that has paid and raised its dividend for at least 50 consecutive years.
4. Coca-Cola has a high dividend yield and a stable business
Although Coca-Cola is a completely different company from P&G, the investment thesis for both stocks is very similar. Like P&G, Coca-Cola is a Dividend King and has several well-known brands that consumers know and love. From its flagship soda products to Simply, Minute Maid, Vitamin Water, Smart Water, and acquisitions like Topo Chico, Coca-Cola is so much more than just the Coca-Cola brand.
The investment thesis for Coca-Cola is that folks are unlikely to cut their spending on its products even during economic downturns -- making its business stable. Coca-Cola stock has a 2.8% dividend yield, which is quite a bit higher than P&G's 2.2%.
A diversified basket of proven passive income winners
Investing in equal parts of UPS, Chevron, Procter & Gamble, and Coca-Cola gives an investor a dividend yield of 2.9% and exposure to the industrial sector, the energy sector, and two different industries in the consumer staples sector. All four companies are long-term proven winners but are especially attractive buys during times of high volatility because investors can be confident that each business isn't going away anytime soon.
