Warren Buffett is considered one of the most successful investors of all time. So it makes sense that, when looking for long-term investment ideas, it might be good to check out what the Oracle of Omaha decides should be in the Berkshire Hathaway (BRK.A 1.18%) (BRK.B 1.30%) portfolio he oversees.
Two of the top five Berkshire holdings (by percent of the portfolio) share three characteristics: Strong historical presence and brand awareness; Leadership in the markets they serve; and They pay out a quarterly dividend. A third holding is one of the smaller stocks in the portfolio (as a percent of total value), but it is delivering higher annual dividends than any of the others.
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1. UPS delivers dividends
One look at the Berkshire Hathaway portfolio and you'll see that United Parcel Service (UPS 0.02%) makes up less than 1/10 of 1% of the full value. But don't let that fool you on the potential of this stock for long-term investors.
The coronavirus pandemic brought a shift in the way we live, leading to an increase in online ordering and delivery services. UPS benefited from that increase, with 2021 seeing a 15% jump in full-year revenue and a 51% jump in operating profit -- allowing the company to take care of its investors.
The company has increased its dividend consistently for the past 20 years, culminating in a 49% year-over-year jump from 2021 to 2022, to over $6 per share annually. Whether you're a young investor looking to reinvest dividends to gain "free" shares along the way, or if you're a retiree looking for quarterly income, UPS may be the way to go to achieve your investment goals.
Over the past 10 years, the stock price has grown by 144%. A $10,000 investment at that time would be worth over $24,000 today. And the dividends you'd be receiving this year would equate to $192 per quarter, or the equivalent of one extra share of the stock per quarter if the share price were to hold at the current $190 price.
The downside to UPS is that a large chunk of the share price acceleration took place during the onset and throughout the pandemic. Freight prices are starting to level out, and analysts are taking note by lowering UPS's share price targets.
The good news is there is no sign of slowing for delivery services. In fact, the future of delivery is likely to be from drones, which UPS has already proven to be successful when it delivered COVID-19 vaccines via drone. The company is also teaming up with leading pharmacy CVS Health to deliver medical products.
The drone delivery market is projected to grow at a rapid compound annual growth rate of 58% by 2027. And with the stock price already down by 22% since February, now could be a great time to get in on that hefty dividend action.
2. Coca-Cola
Coca-Cola (KO 2.14%) enjoys strong brand awareness among consumers. A possibly lesser-known fact -- though arguably as important -- is that the company holds a position in the elite ranks of Dividend Kings because it has increased its annual dividend for 60 consecutive years. With that status, it's no wonder Buffett has gone on record at times saying he would never sell a share of Coca-Cola stock, which currently ranks as the fourth-largest holding in his Berkshire portfolio.
The company synonymous with soft drinks has a product portfolio that has been expanding to include sports drinks, juices, teas, energy drinks (with coffee), sparking water, and alcoholic beverages.
In 2021, revenue grew by 17% year over year, helping push earnings per share up by 26%, driven by softening pandemic restrictions and growth in at-home and away-from-home channels. The company also completed its full purchase of BodyArmor, the No. 2 selling sports drink in the U.S.
Although the stock price has seen what some may consider mediocre growth over the past 10 years, at 69%, it offers investors the comfort of products that are in consistent demand, and its slow but steady revenue growth in the mid-single digits is expected to continue. Along with a consistent dividend payout, it makes for one of those foundational stocks you want in your portfolio that will keep paying dividends without the risk of tanking during down markets.
3. Apple
Apple (AAPL -1.22%) brings the flash and excitement that comes with technology that makes life more flexible. Innovative development has pushed revenue and share price growth, leading Buffett and his partners to make Apple far and away the top position in the Berkshire Hathaway portfolio at 43% of the total value.
Apple is synonymous with the smartphone, and has gone on to develop AirPods, the Apple Watch, and a new powerful processing chip -- the M1 Ultra -- for its computers. These products display the innovative leadership that allows the company to grow revenue by 29% year over year, to $378 billion in fiscal 2021, and earnings up 25% in the first quarter of fiscal 2022.
Moving into 2022 and beyond, growth catalysts include expanding its wearables product portfolio with virtual reality headsets expected in 2023, which could result in sales of 15 million units off the bat. The company will also benefit from a 5G push moving customers to 5G-capable iPhones, and its services business growing at a rate that Wedbush analyst Dan Ives believes could support double-digit earnings-per-share growth on its own. Based on 2021's jump of 12% in subscriptions across services, so far so good.
Broader market restraint is keeping tech stocks suppressed. With a little momentum, I could see Apple stock at $200 a share. First-quarter earnings come out on Thursday, April 28. A surprise to the upside could send Apple stock skyrocketing. But regardless, the future is bright, and for long-term investors, it could be the start of a 10-year run much like we've seen for the past 10 years.
