Thanks to gravity, nobody on Earth will ever get to swim Scrooge McDuck-style through a vault filled with gold coins. There is, however, a completely real financial phenomenon that may feel a little bit similar, and it's one that everyday investors can achieve with a little forethought and a lot of patience.
Warren Buffett and the holding company he's managed since 1965, Berkshire Hathaway (BRK.A 0.16%) (BRK.B 0.10%), regularly receive tsunami-sized waves of dividend payments from the stocks in the conglomerate's portfolio.
Image source: Getty Images.
Over the next 12 months, Berkshire Hathaway will receive dividend payments totaling more than $6 billion. Naturally, the payments in our brokerage accounts will be far from that magnitude. That said, emulating Buffett's purchases of dividend-paying stocks could help your portfolio support you in a comfortable retirement.
Thanks to the regular disclosures Berkshire Hathaway must make to the Securities and Exchanges Commission, emulating Buffett's dividend stock purchasing activity is a lot easier than you might think. Here's what retail investors should know about two dividend-paying stocks that Berkshire Hathaway placed big bets on during the third quarter.
Chevron
Berkshire Hathaway purchased more than 3.9 million shares of integrated oil and natural gas giant Chevron (CVX 2.21%) during Q3. Now it's the conglomerate's third-largest holding, and it's on pace to deliver a whopping $939 billion in dividend income to the company over the next 12 months.
NYSE: CVX
Key Data Points
When fossil fuel prices are up -- as they are at the moment -- Chevron's upstream oil and natural gas production business generates heaps of income. In the first nine months of 2022, those upstream operations earned $24.8 billion, which was more than twice as much as they did in the prior-year period.
Chevron has raised its dividend payout at least once a year since merging with Unocal in 2004. Patient shareholders could see some big payout bumps over the next several years. The company needed just 29.5% of the free cash flow that operations generated over the past year to meet its dividend obligations.
Of course, fossil fuel prices are notoriously unpredictable. Buffett was drawn to Chevron partly because it also owns plenty of refineries and other downstream assets that can thrive when their feedstock prices fall. A prolonged conflict in Ukraine will most likely keep oil and natural gas prices elevated. If they should fall unexpectedly, though, Chevron should have no trouble meeting its dividend obligations until they recover.
Taiwan Semiconductor Manufacturing
Buffett isn't known for buying tech stocks, so Berkshire Hathaway's $4.1 billion bet on Taiwan Semiconductor Manufacturing (TSM +1.97%), aka TSMC, turned a lot of heads. It's the world's largest contract manufacturer of chips designed by other companies such as Nvidia and Apple.
While Buffett generally isn't a tech stock investor, he famously likes to buy shares of cyclical businesses while they're down. Fears that a possible recession will cause device manufacturers to cut back even further on their semiconductor orders than they already have are weighing TSMC stock down right now. The shares have fallen by around 41% from the peak they reached in January.
NYSE: TSM
Key Data Points
Buffett is also known to prefer businesses with durable advantages over their competition, and this description fits TSMC. Chip designers flock to Taiwan Semiconductor because it's one of just a few companies that can manufacture the most advanced current chips using the 5-nanometer process node, which utilizes smaller transistors than previous technologies -- meaning more transistors can be fit onto each chip, increasing processing power.
TSMC's advantage over the competition is about to get even wider. Management expects to begin manufacturing using the 3-nanometer process node at scale by the end of 2022.
At its recent share prices, TSMC's dividend yields 1.1%. And while the precise amount U.S. investors will receive fluctuates with foreign exchange rates, you'll be glad to know the company hasn't cut its payout since it began its all-cash dividend program in 2009.
Over the past year, TSMC generated a whopping $17.2 billion in free cash flow, and it needed just 56% of that to meet its dividend obligations. With a well-funded dividend program, the payout could jump higher once the semiconductor cycle hits a fever pitch again.
