In times of volatility, investors looking to deploy cash can look for stocks trading at a discount, or if they want to avoid the volatility altogether, they can check out stocks with strong dividend yields that, over time, can result in stable passive income. Not too many know more about dividend stocks than Warren Buffett. Through his company Berkshire Hathaway, Buffett has invested in more than a few dividend stocks that have contributed to Berkshire's outperformance over the years.
Three stocks that generate some nice dividend yields for Buffett are the telecommunications giant Verizon Communications (VZ -0.43%), the large energy producer Chevron (CVX -1.16%), and the large bank U.S. Bancorp (USB 1.82%). Investing $6,000 in Verizon with a roughly 4.8% dividend yield, $5,000 in Chevron with a roughly 3.25% dividend yield, and $5,000 in U.S. Bancorp with a roughly 3.4% dividend yield would generate about $3,100 in passive income in five years. Not too shabby for mailbox money. Let's take a look at each of these three stocks.
Buffett purchased Verizon at the end of 2020 in the middle of the pandemic at a time when he was doing more selling than buying. Not only does Verizon offer a strong dividend yield, but it is also a classic Buffett value play, trading under 10 times earnings. Verizon also seems to have some momentum, coming off a strong quarter in which earnings and revenue beat expectations, and guidance for this year also came in above analyst projections.
Verizon is making good progress with its 5G wireless internet initiative and within that are some new and exciting business lines it seems to be taking the lead on such as network as a service (NaaS), which is a digital subscription that enables a user to sync all of their electronics from an iPhone to an autonomous vehicle. Verizon has now increased its dividend for 15 straight years, making it a very strong dividend stock.
Chevron is one of the best-performing stocks in Berkshire's portfolio and is up more than 40% so far in 2022. The catalyst this year has been Russia's invasion of Ukraine, which has significantly driven up oil prices. With the U.S. and many other countries banning oil and gas imports from Russia due to the war, and Russia being one of the largest exporters of gas, that has made American energy companies very valuable. Chevron currently trades at all-time highs.
The company is also in strong financial shape and in the past has managed to grow free cash flow even when the price of oil is falling. Chevron is also planning to significantly increase its share repurchases and recently raised its free cash flow projections through 2026. The company has raised its dividend annually for 36 consecutive years. Given its strong performance this year, it's certainly fair for investors to wonder if a pullback is coming at some point, but it's in very solid financial shape and is a great dividend stock.
3. U.S. Bancorp
Rounding out the group is U.S. Bancorp, one of the largest banks in the U.S. with more than $564 billion of assets. U.S. Bancorp survived the massive bank sell-off by Buffett and Berkshire during the pandemic and looks to be Buffett's U.S. regional bank of choice. U.S. Bancorp runs a top-notch commercial bank, catering to small businesses, as well as larger corporations through its unique payments business, which sets it apart from its peers. In the coming years, U.S. Bancorp has plans to marry and further integrate its payment and commercial banking products.
Since 2010, U.S. Bancorp has regularly generated strong annual returns on equity in excess of 14%, which is a good indicator of how much money the company has made on shareholder capital. U.S. Bancorp has been a consistent dividend payer and has also consistently increased its dividend since 2010. It's a bank that has regularly been among top industry performers.