Warren Buffett's investing prowess and patience have allowed the "Oracle of Omaha" to consistently rank among the wealthiest individuals in the world for many years now.
The investment returns that the chairman and chief executive officer has produced for Berkshire Hathaway's (BRK.A 0.43%)(BRK.B 0.76%) long-time shareholders are unparalleled. Depending on your investment goals, giving some consideration to stocks in the Berkshire portfolio and adding them to your own can potentially be lucrative.
Let's take a closer look at three Buffett stocks that look like strong buy recommendations right now.
Image source: The Motley Fool.
1. Mastercard
As consumers continue making more purchases online rather than offline, cash will gradually become displaced in favor of non-cash payments. Analysts at Boston Consulting Group project that the payments industry will almost double from $1.5 trillion in 2021 to $2.9 trillion by 2030.
Mastercard's (MA 1.03%) $353.8 billion market capitalization makes it the second-largest publicly traded payments company in the world behind Visa. Thanks to its size and scale and the projected growth in its industry, analysts believe that Mastercard can deliver 23.3% annual earnings growth over the next five years.
NYSE: MA
Key Data Points
Thanks to this steady growth in earnings, Mastercard pays out a growing dividend. The stock's dividend payout ratio is only 18.6%, leaving plenty of room to boost the dividend without affecting its ability to reinvest in the company. The stock's 0.5% dividend yield is well below the S&P 500 index's 1.5% yield, but its rapid growth potential and stock price appreciation compensates for the low yield. Mastercard has plenty of flexibility to hand out double-digit percentage annual dividend increases over the medium term.
Mastercard's stock is selling at a premium with a forward price-to-earnings (P/E) ratio of 34.5 is double the S&P 500 index forward P/E ratio of 16.9. But that premium appears to be well deserved when considering the growth potential of this company.
2. Coca-Cola
With a leading portfolio of iconic brands like the eponymous Coca-Cola, Dasani bottled water, and Powerade sports drink, beverage giant Coca-Cola (KO 1.03%) has something to suit everyone's taste. With Coca-Cola working to increase its penetration rate in international emerging markets (i.e., China and India), analysts believe that the company will produce 6.6% annual earnings growth over the next five years.
NYSE: KO
Key Data Points
Because of that growth, Coca-Cola generates enough excess cash each quarter to pay out regular dividends and it has been growing that payout annually for at least 60 consecutive years, earning it Dividend King status. Its dividend yields a market-beating 2.8% and its dividend payout ratio of 71.3% means Coca-Cola has enough excess cash to keep mid-single-digit annual dividend growth going in the years ahead.
The stock's forward P/E ratio of 25.6 is well above the S&P 500 consumer staples sector average of 20.4. Part of that premium is a reflection of the company's recent stock price growth related to its recovery from pandemic-related slowdowns that had depressed the stock price. This premium is arguably justified due to Coca-Cola's dividend prowess and its quality as a business compared to its peers.
3. Verizon Communications
There's a good chance you're reading this article on your smartphone. And if you're anything like the average American, you will turn to your phone dozens of times each day for a variety of activities like texting, emails, information gathering, and online shopping.
Verizon Communications (VZ 0.37%) is the largest telecom company in the world and it helps get all that data to millions of customers' smartphones every day. The insatiable need for more of this information at faster rates will continue to fuel Verizon's growth. The rollout of 5G cell services throughout the country to meet this growing need should bode well for Verizon's growth prospects. It's a big part of why analysts are forecasting 3.6% annual earnings growth for the next five years.
NYSE: VZ
Key Data Points
Despite all its investments in growth, Verizon still manages to generate plenty of excess cash that it pays out to stockholders. It's dividend is growing and generates an enviable 5% yield. The stock's dividend payout ratio is a very manageable 48%, which should easily allow Verizon to maintain dividend growth in line with earnings growth.
Part of the reason for the high yield is that Verizon's stock price has been underperforming recently. Verizon stock is trading at a forward P/E ratio of 9.5. This is much lower than the communications services sector's average forward P/E ratio of 14.9. Investors buying Verizon stock now are getting a quality dividend payer at a below-average valuation.
