Warren Buffett took over Berkshire Hathaway (BRK.A 1.34%) (BRK.B 0.99%) in 1965. Over the decades, it has evolved from a little-known textile company to one of the largest companies in the world. Its stock has a $779 billion market capitalization and possesses an investment portfolio worth $345 billion. The outstanding track record of this holding company's investments suggests it might be wise to take a closer look at Berkshire Hathaway's stock holdings to see if any might be a good fit for your portfolio.
Here are two especially high-quality dividend stocks that Buffett has long held in Berkshire's portfolio that are currently worth buying.
The first stock for dividend growth investors to consider purchasing now is the mega-cap beverage maker Coca-Cola (KO 0.63%). Coca-Cola is the fourth-largest holding in Berkshire Hathaway's portfolio, with a 9.2% ownership stake valued at $25.6 billion.
In February, Coca-Cola raised its quarterly dividend by 4.8% to $0.44 per share. This marked the 60th straight year that the stock upped its annual payout to shareholders, which is a streak only matched or exceeded by 10 other Dividend Kings.
With such a storied dividend growth track record, investors can't be blamed if they conclude that Coca-Cola's best days are already behind it. On the contrary, that doesn't appear to be the case for a couple of reasons.
Coca-Cola has a portfolio of 21 billion-dollar brands (double its total in 2007) that are sold in more than 200 markets around the world. The company's iconic portfolio includes the eponymous Coca-Cola, Dasani bottled water, and sports drink Powerade. It also suggests that it has a beverage to suit everyone's drink preferences. Along with steady global population growth, this explains why analysts are forecasting 7.2% annual earnings growth over the next five years.
Coca-Cola's 72.4% dividend payout ratio in 2021 is only starting to approach the high side of sustainability and could be a temporary situation related to the pandemic. In order to repay debt, execute acquisitions, and repurchase shares to drive non-GAAP (adjusted) earnings per share (EPS) upward, it's likely Coca-Cola's dividend growth will slightly lag its earnings growth in the short term.
But the 5% to 7% annual dividend growth this should translate into is fair given the stock's market-beating 2.8% dividend yield. And dividend growth investors can scoop up shares of Coca-Cola at a forward price-to-earnings ratio of 24.2. This is just below the nonalcoholic beverages industry average of 24.4, which makes the stock an attractive buy.
2. Johnson & Johnson
The second stock that dividend investors should pick up for their portfolio is Johnson & Johnson (JNJ 0.19%). Don't let Berkshire Hathaway's modest $59 million position in the stock fool you: J&J is arguably the best healthcare stock in the world.
J&J's 59 consecutive years of dividend growth is the longest stretch in all of healthcare. And it appears as though this run has plenty of fuel left in the tank for three reasons.
It boasts one of the strongest existing drug portfolios among pharma stocks. The stock's portfolio consists of two megablockbusters -- its immunology drug called Stelara and the cancer drug named Darzalex. J&J also has a blockbuster COVID-19 vaccine and 11 other blockbuster drugs in its portfolio. This enviable drug portfolio explains why analysts are anticipating 6.1% annual earnings growth through the next five years.
And beyond the medium term, J&J's growth should continue. That's because the company has nearly 50 indications in phase 2 or phase 3 clinical trials in its pipeline. As some of these indications are approved by regulatory authorities around the world, this should power revenue and earnings higher.
Finally, J&J's dividend payout ratio was just 42.8% in 2021. This leaves room for the stock to grow its payout moving forward. That's why I'm predicting 6% to 7% annual dividend growth for the foreseeable future. Coupled with J&J's 2.4% dividend yield, this is a nice mix of yield and growth potential.
Investors can snatch up shares of J&J at a forward P/E ratio of 17.1, which is below the S&P 500's forward P/E ratio of 18.9. For a stock of J&J's quality, this discount to the broader market makes it an enticing buy right now.