Warren Buffett loves consistency. And he also likes dividends -- even though his Berkshire Hathaway doesn't pay a dividend. When you put those two attributes together, it's a match made in heaven for the legendary investor.
Dividend Aristocrats provide both consistency and dividends. Only S&P 500 members with at least 25 consecutive years of dividend increases qualify for the elite group. Here are the three Dividend Aristocrats that Buffett likes the most.
For much of his life, Buffett drank Pepsi. But he later switched to Coca-Cola (KO 0.34%) soft drinks. More importantly, he led Berkshire to initiate a major position in Coca-Cola stock in 1988. It remains one of the top stocks in Berkshire's portfolio, ranking behind only Apple and Bank of America.
Coca-Cola has increased its dividend for 60 consecutive years. This track record makes the stock not only a Dividend Aristocrat but a Dividend King as well.
Berkshire will receive more than $700 million in dividends from Coca-Cola this year based on the number of shares it currently owns. This huge payout is probably a sufficient reason for Buffett to hang on to those shares all by itself.
However, he also likes Coca-Cola's underlying business and its management team. Sure, soda consumption is declining. But Coca-Cola has acquired and developed other beverages, including bottled water, coffee, juices, sports drinks, and teas. It has also achieved success with the launches of sugar-free soft drinks such as Coke Zero.
Buffett just can't seem to get enough of Chevron (CVX 0.84%). Berkshire bought nine stocks in the second quarter of 2022; Chevron was one of them. The oil and gas giant now ranks as the fifth-largest holding in Berkshire's portfolio.
Chevron has increased its dividend for 35 consecutive years. Its dividend yield of over 3.6% is among the juiciest of all the stocks owned by Berkshire. The conglomerate stands to receive more than $900 million in dividends from Chevron this year.
This energy stock has also been one of Buffett's biggest winners in 2022. Chevron's share price has soared more than 30%. Rising fuel prices served as a key catalyst for the stock. Chevron CEO Michael Wirth thinks that prices could rebound after the recent pullback.
Even if fuel prices don't soar again, Buffett will likely hold on to this Dividend Aristocrat. Chevron has positioned itself well to remain profitable even if oil and gas prices fall. The stock is also attractively valued despite its big gains, with shares trading at less than 9.5 times expected earnings.
3. Johnson & Johnson
Johnson & Johnson (JNJ 2.40%) is kind of a sleeper in Berkshire's portfolio. Buffett had a much larger position in the healthcare giant years ago but sold much of the stake. However, Berkshire's relatively small position in J&J is still enough to make it the portfolio's No. 3 Dividend Aristocrat.
Like Coca-Cola, Johnson & Johnson is both a Dividend Aristocrat and a Dividend King. The company has increased its dividend for 60 consecutive years. J&J has long been a favorite for dividend investors because of this consistency and its attractive dividend yield.
The healthcare stock has lagged behind the S&P 500 in recent years. J&J's dividend, though, helped close the gap for total returns quite a bit.
It's likely that Johnson & Johnson could be a bigger winner for Buffett going forward. The company plans to spin off its consumer health unit in 2023. That will leave J&J with the faster-growing pharmaceutical and medtech segments.