Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) doesn't pay a dividend. Perhaps it never will. That doesn't mean, though, that Warren Buffett doesn't like dividend stocks. Actually, he appears to love them.
Some of the dividend stocks in Berkshire's portfolio could be attractive to investors who aren't billionaires. How much income could you make this year from investing $30,000 in Buffett's three top dividend stocks? Perhaps more than you might think.
Image source: The Motley Fool.
Buffett's top three dividend stocks
Technically, you could say that Apple, Bank of America, and Chevron are the legendary investor's top dividend stocks. They're the three largest positions in Berkshire's portfolio. And they all pay dividends.
Let's take another approach, though. There are other stocks that Buffett owns that pay much higher dividend yields than those three big holdings do. So what are the Buffett stocks with the highest dividend yields?
Paramount Global (PARA -2.22%) ranks at the top of the list. The entertainment company currently offers a dividend yield of 4.09%. Paramount is one of a handful of stocks that Buffett bought in the fourth quarter of 2022.
Berkshire owns such a large stake in Kraft Heinz (KHC -0.55%) that the food company is listed among the conglomerate's subsidiaries on the Berkshire Hathaway website. Kraft Heinz narrowly trails behind Paramount Global with a dividend yield of 4.02%.
Citigroup (C 1.41%) comes in third place with a dividend yield of 3.96%. Like Paramount, the financial services giant is a relative newcomer to Berkshire's portfolio. Buffett initiated a position in Citigroup in the first quarter of 2022.
Counting the money
The math is straightforward in calculating how much income you could make this year by investing $30,000 in these three stocks. First, let's assume that you invest equally in the stocks -- $10,000 in each. Next, we simply multiply the current dividend yield for each stock by the $10,000 invested.
| Stock | Dividend Yield | Annual Income |
|---|---|---|
| Paramount Global | 4.09% | $409 |
| Kraft Heinz | 4.02% | $402 |
| Citigroup | 3.96% | $396 |
| Total | $1,207 | |
Data source: Google Finance. Table created by author.
The total of $1,207 reflects an average yield of 4.02%. That's not a bad level of income, especially considering that you could also potentially gain from share appreciation as well.
We are making an assumption, though, that none of these companies will change their dividend payouts this year. Paramount, Kraft Heinz, and Citigroup have kept their dividends steady since at least 2020. All three companies appear to be in good shape to continue paying dividends at current levels.
However, S&P Global expects Citigroup to increase its dividend by 11.8% in 2023. If this prediction comes true, you could make a little more than $1,207 in income this year from Buffett's top three dividend stocks.
Expanding the horizon
Paramount Global, Kraft Heinz, and Citigroup are indeed the three highest-yielding dividend stocks among the holdings listed in Berkshire Hathaway's regulatory filings. But those aren't the only Buffett stocks. Berkshire's subsidiary, New England Asset Management (NEAM), has its own portfolio that doesn't completely align with Berkshire's direct holdings.
If we expand the horizon to include the dividend stocks Buffett owns via NEAM, the picture changes quite a bit. Ares Capital (ARCC 0.73%) takes the top spot with a dividend yield of 9.72%. Another business development company, Golub Capital BDC (GBDC 2.17%). comes in second with a dividend yield of 9.65%. Telecom giant Verizon Communications (VZ 1.17%) ranks third with a dividend yield of 6.55%. The table below shows the income that could be generated this year from these three stocks.
| Stock | Dividend Yield | Annual Income |
|---|---|---|
| Ares Capital | 9.72% | $972 |
| Golub Capital BDC | 9.65% | $965 |
| Verizon Communications | 6.55% | $655 |
| Total | $2,592 | |
Data source: Google Finance. Table created by author.
Again, any of these three companies could change their dividend payouts. Verizon's dividend hinges largely on its consumer segment, which could be problematic if there's a steep economic downturn. However, Verizon has increased its dividend for 16 consecutive years and seems likely to keep the streak going. Ares Capital and Golub Capital's dividends could be more volatile, though.
Still, you could realistically make nearly $2,600 in income this year by investing in Buffett's top three dividend stocks including those owned in NEAM's portfolio. An average yield of 8.6% could be quite attractive to income investors.
