What does Warren Buffett like? He's known for enjoying Cherry Cokes. He likes to play bridge. Buffett is an avid reader. And we can add at least one other thing to the list: He likes to receive dividends.
We know that because many of the stocks in Buffett's Berkshire Hathaway (BRK.A -0.34%) (BRK.B -0.01%) portfolio pay dividends. Which are the best of the bunch? Here are my picks for the three best Buffett dividend stocks to buy now.
1. Chevron
Chevron (CVX 0.57%) ranked among the handful of stocks that were most important for Buffett's beating the market last year. Its shares soared more than 50%. Chevron's total return was even better, thanks to its solid dividend.
The company's dividend yield currently stands at nearly 3.2%. I expect the yield to fall somewhat in 2023. No, I don't think that Chevron will cut its dividend payout and break a 35-year streak of dividend increases. Rather, I predict that the stock will grow at a faster rate this year than its dividend will.
Oil prices fell sharply in the second half of 2022. The U.S. Energy Information Administration projects that the average 2023 price of Brent crude oil could be close to 15% above current levels. I wouldn't be surprised if the actual increase is even higher.
Chevron would be an obvious beneficiary if this bullish outlook for oil pans out. Even if not, the company is positioning itself for the long term by investing in carbon capture technology. Carbon capture could represent a multitrillion-dollar opportunity over time. Buffett knows all of this, which is probably why Chevron is now the third-largest stock in Berkshire's portfolio.
2. Occidental Petroleum
Chevron isn't the only oil stock Buffett owns that performed exceptionally well in 2022. Shares of Occidental Petroleum (OXY 0.58%) skyrocketed 117% and, at one point, were up more than 160% year to date.
Buffett aggressively bought Occidental stock throughout much of last year. However, I doubt that the company's dividend was a factor in the legendary investor's decision at all. Occidental's dividend yield is only around 0.8%.
As much as Buffett likes dividends, he likes attractive valuations even more. And it's a pretty safe bet that he still views Occidental as a bargain. Why? In August 2022, Berkshire obtained regulatory approval to acquire up to 50% of Occidental. Shares of the oil and gas producer are now more than 10% lower than they were then.
Occidental isn't a top Buffett dividend stock to buy right now because of its dividend. I do think, though, that it deserves the No. 2 spot because of its potential to deliver impressive gains again this year. Higher oil prices could serve as a nice catalyst for the stock. And if they don't, Berkshire's continued buying could push Occidental's share price higher anyway.
3. Johnson & Johnson
Johnson & Johnson (JNJ 0.29%) could probably always make the short list of top Buffett dividend stocks. After all, the company is a Dividend King with 60 consecutive years of dividend increases. There are few stocks with a more impressive track record of paying dividends.
Sure, J&J wasn't as big of a winner for Buffett last year as Chevron and Occidental were. However, the healthcare giant's modest gain of 3% still trounced the S&P 500 and the Dow Jones Industrial Average.
I think that Johnson & Johnson's prospects look pretty good for 2023 as well. The company plans to spin off its consumer health unit later this year. This will leave J&J with the faster-growing pharmaceutical and medtech businesses.
Perhaps most importantly, I expect that the overall stock market could remain volatile throughout much of the new year. Johnson & Johnson is rightfully viewed by many investors as a safe-haven stock during tumultuous times. Its resilient business and financial strength should continue to be attractive in 2023.
