It's a well-established fact that Berkshire Hathaway (BRK.A -1.14%) (BRK.B -1.45%) CEO Warren Buffett knows how to make money during good times and bad. Since taking the helm of the now decommissioned textile business in 1965, he's turned it into a conglomerate worth more than $700 billion at the moment.
Recessions, war, and high inflation are challenges that Buffett has overcome in the past. There are lots of reasons Buffett's been one of the most successful money managers in history, and his appreciation of dividend-paying stocks is a big one.
There are dozens of holdings in Berkshire Hathaway's portfolio, and more than a few distribute their profits to shareholders as dividends. Here are three of the biggest dividend-paying holdings in the portfolio.
Electric vehicle (EV) stocks get a lot of attention from retail investors, but Buffett's never been interested in the next big thing. Instead, he's betting big on continuing demand for crude oil and natural gas. To this end, he acquired over 120 million shares of Chevron (CVX 0.23%) in the first quarter of 2022. As a result, Berkshire Hathaway can expect dividend payments totaling $904 million from Chevron this year.
Chevron is an integrated oil and gas company, so when energy prices fall too far to make money from pulling oil and gas out of the ground, the company's refineries become extra profitable to make up the difference. Chevron also sports pipelines and storage facilities that produce steady cash flows in just about any environment.
Chevron is already one of the energy sector's largest players so it probably isn't going to grow by leaps and bounds. That said, it could produce steadily rising dividend income for the foreseeable future. Like it or not, fossil fuels are going to stick around for a very long time. Rising fuel prices encourage the purchase of new EVs, but each one that hits the road also lowers the overall demand for oil. This eventually leads to decreasing fuel prices that make going electric seem less attractive all over again.
Bank of America
In the first quarter, Buffett sold around 3 million shares of Bank of America (BAC -2.96%) but it's still one of Berkshire Hathaway's largest holdings. This year, Buffett's conglomerate is in line to receive around $848 million in dividend payments from Bank of America.
Berkshire Hathaway and the rest of BofA's shareholders saw the company earn $31 billion over the past year. This was more than enough to meet the company's total dividend obligation of $8.2 billion over the same period. There are a lot of ins and outs when it comes to rising interest rates and consumer bank cash flows. The most important one to remember is that higher rates are generally better for banks.
In the first quarter, the difference between the revenue generated by interest-bearing assets and expenses lost to interest-bearing liabilities or net interest income came in at $7.1 billion. That was $1 billion less than during the previous year's period, but investors have a good reason to expect big gains in the future.
The Federal Reserve intends to raise interest rates by 0.5% at least a few times this year to combat rising inflation. Assuming rates on short- and long-term assets rise in parallel, BofA expects net interest income to increase by $5.4 billion for every 1% rise in interest rates.
Buffett's generally not a tech investor but he knows a strong competitive advantage when he sees one. The ubiquitous iPhone and other popular Apple (AAPL -0.78%) products are still an important part of Apple's business, but it's the company's increasingly popular subscription services that have inspired Buffett to make this the single-largest holding in Berkshire Hathaway's portfolio. This year, Berkshire Hathaway could receive around $820 billion worth of dividend payments from Apple.
Apple's raised its payout at least once in each of the past 10 years, and it's risen by 143% since 2013. That's an impressive run for a company with fairly lumpy revenue that soars following product launches and during the months leading to Christmas.
Rumors that Shanghai's latest lockdown will delay the launch of Apple's next iPhone have been hard on the stock, but this won't stop the company from meeting and raising its quarterly payouts. The company generated a whopping $105.8 billion of free cash flow over the past 12 months, while its annual dividend obligation is currently just $14.4 billion.
More revenue coming from Apple's own subscription services plus at least 15% of all third-party sales and subscriptions taking place on the incredibly lucrative App Store will smooth out the company's cash flows in the years ahead. This means investors can probably look forward to at least another decade of annual payout raises.