There's one scenario that's like hitting the trifecta for an income investor. First, pick stocks that legendary investor Warren Buffett really likes. Second, keep only the ones that offer dividends. Third, select from those the stocks that should deliver strong gains over the next few months.
You'd be left with an elite group of excellent stocks to buy by following this exercise. But which stocks can help you hit the trifecta? Here are three Buffett dividend stocks that are poised to pop.
1. Bank of America
You might be surprised to see a bank stock on the list considering the turmoil experienced by the banking industry this year. But Bank of America (BAC 0.11%) isn't an ordinary bank stock.
For one thing, it's one of the few bank stocks that Buffett hasn't slashed Berkshire Hathaway's (BRK.A -0.66%) (BRK.B -0.64%) position in over the last couple of years. When asked last week by CNBC's Becky Quick why he's held onto BofA, Buffett replied that he likes the company's CEO Brian Moynihan "enormously." He added, "And I just don't wanna, I don't wanna sell it."
The decline in Bank of America's share price has driven its dividend yield to the highest level since the COVID-19 meltdown in 2020. The yield currently stands at nearly 3.1%.
Buffett acknowledged in his CNBC interview last week that there could be more bank failures. However, Bank of America won't be one of them. It's well-managed and has a solid balance sheet. The stock is a steal right now with shares trading at less than 8.3 times expected earnings. BofA shouldn't be that cheap for much longer.
2. Chevron
Chevron (CVX -0.67%) definitely checks off all the boxes in our trifecta checklist. The oil giant ranks as the third-largest holding in Berkshire's portfolio -- right behind Bank of America. Buffett aggressively bought shares of Chevron beginning in 2020 and kept on adding to his position into the latter part of 2022.
Income investors have loved Chevron for years. Its dividend yield currently stands at 3.5%. The company has increased its dividend for 36 consecutive years.
Although Chevron stock sank at the beginning of 2023, it's been on a roll in recent weeks. Saudi Arabia's decision to cut oil production caused oil prices to rise, providing a catalyst to Chevron and other oil stocks.
Chevron can generate plenty of cash even with oil at $60 per barrel. However, some experts predict that oil prices will reach $100 per barrel or higher this summer with increased demand accompanying lower production. If oil prices keep rising, so will Chevron's share price.
3. Occidental Petroleum
Buffett has clearly become a huge fan of Occidental Petroleum (OXY -0.69%). It was one of only four stocks that he bought for Berkshire's portfolio in the fourth quarter of 2022. And he's kept on buying Oxy shares this year.
The multibillionaire identified two things that he likes about Occidental in his interview with CNBC last week. First, he praised CEO Vicki Hollub, stating that she's "extremely competent." Buffett also mentioned that he thinks Occidental has a big opportunity with its carbon capture initiatives.
Unlike Bank of America and Chevron, Occidental doesn't offer an especially attractive dividend. Its yield barely tops 1.1%. However, the company is in a great position to boost its dividend with its super-low payout ratio.
More importantly, the oil stock should have a lot of room to run. Those higher oil prices mentioned earlier could provide a catalyst for Occidental. It should also help that Buffett is likely to keep on buying the stock. Berkshire secured regulatory approval last year to acquire up to 50% of Occidental, but it currently owns just 23.6%.
