Everything about Warren Buffett and his Berkshire Hathaway (BRK.A +0.85%)(BRK.B +0.86%) investment vehicle is oversized. That particularly applies to the monster pile of dividends Berkshire earns on its equity portfolio, which is set to top a hard-to-believe $6 billion-plus over the next year or thereabouts.
The two top-yielding dividend stocks among Berkshire's holdings both have yields topping 5% these days. Yield isn't everything, however, and we always have to consider other crucial factors like a company's fundamentals before deciding whether or not they're for us. With that in mind, here's a brief rundown of these two stocks -- Paramount Global (PARA +0.00%) and Ally Financial (ALLY +2.52%).
1. Paramount Global
Buffett isn't necessarily renowned as an owner of entertainment companies, which can be volatile and unpredictable even at the best of times. Yet he clearly sees potential in Paramount Global, the latest corporate successor to the storied Hollywood Paramount film studio.
These days, Paramount Global is a sprawling TV and film production and distribution factory. As per the current standard in its industry, the company is also devoting plenty of capital and effort to operating a streaming video service, Paramount+.
With its name change, Paramount Global continued the dividend policy of its predecessor, the rather clumsily named ViacomCBS. Paramount pays a quarterly dividend of $0.24 per share, which works out to an impressive yield of 5.8%.
The catch is, though, that the quarterly dividend has remained unchanged since August 2019. That tracks with recent revenue growth, which was a decent-but-not-great 5% year over year in Paramount Global's latest reported quarter. Much of this was due to the direct-to-consumer (DTC) segment anchored by Paramount+, which saw a pleasing uptick of nearly 40% in revenue thanks largely to growth in the subscriber count.
However, the company's classic bread and butter, the TV media unit, actually saw sales decline (by 5%) over that stretch. This was generally because of softer spending by cautious advertisers, a trend that is likely to drag on given the current fears over the macroeconomy that have spread through corporate C-suites.
Paramount+, an expansion and evolution from the company's CBS All Access streamer, is doing well as it's still young in its current iteration and is attractively priced. It operates in a hotly competitive market against other media giants, though, and sustained double-digit growth is by no means assured.
So Paramount Global might look tempting given that dividend payout and with the numbers it's putting up (for now) with the upstart Paramount+. But that advertising trend sure isn't the company's friend, so it might be in for a few tough quarters, or even years. I'm not convinced it's a good investment just now.
NASDAQ: PARA
Key Data Points
2. Ally Financial
Niche bank Ally Financial is much more in line with Buffett's investing style, as he has always been partial to companies in the financial sector.
Another Buffett habit is to invest in businesses with wide economic moats, and as a top financier of both auto dealerships and buyers, Ally fits the bill. The company's chunky quarterly dividend helps; at $0.30 per share, it yields a touch over 5%.
Yet the auto industry isn't doing so great these days. Unit sales in the third quarter were stagnant compared to the same period of 2021. They were also well down from the same period of pre-pandemic 2019.
Continuing supply issues on the factory floor and a notable increase in interest rates -- most new car buyers finance their purchase -- have combined to keep the market from growing. And that isn't good news for Ally, as auto financing is the engine that drives its business. Sure enough, in Q3 that activity was largely flat on the top line, bringing in net revenue of just over $1.3 billion.
Some improvement in the take for other activities (corporate finance and mortgages) couldn't move the needle on overall fundamentals, as both of those operations are relatively small. Meanwhile, customer deposits -- the low-cost source of most banks' loans -- weren't meaningfully higher.
Still, Ally did manage to book a non-GAAP (adjusted) net profit, even if the result ($346 million) was over 40% lower year over year. So there's still money to be made, even with a sluggish market for cars, and in a high-interest rate environment.
Better times could be ahead. Lower inflation numbers of late portend interest rate cuts, even if not necessarily in the immediate future. Those supply line issues should ease to some degree, which would make life better for the auto industry and, by extension, its customers. Buffett and Berkshire are often very long-term players, after all, and they could be looking forward to a smoother ride with Ally down the road.
