Warren Buffett's Berkshire Hathaway (BRK.A +0.16%)(BRK.B +0.18%) doesn't pay dividends. However, the famed investor likes to collect dividend income. Berkshire's investment portfolio is currently on track to haul in more than $6 billion in dividends over the next year.
American Express (AXP 0.90%) and Coca-Cola (KO 0.01%) are two of the top dividend payers in Warren Buffett's portfolio. That's largely because he bought shares years ago, and they've steadily increased their dividends. He now collects a lot more dividend income from those positions as a result.
NYSE: BRK.B
Key Data Points
Investors interested in mirroring that approach should consider buying Verizon (VZ +0.28%) and W. P. Carey (WPC +0.27%). They pay big-time dividends that should continue growing in the future.
Buffett's dividend-paying machines
Here's a snapshot of the income Buffett's company currently generates from owning American Express and Coca-Cola:
|
Stock |
Shares |
Current annual dividend payment |
Annual dividend Income |
Berkshire's cost basis |
Dividend yield on the cost basis |
|---|---|---|---|---|---|
|
Coca-Cola |
400,000,000 |
$1.84 |
$736,000,000.00 |
$3.25 |
56.6% |
|
American Express |
151,610,700 |
$2.40 |
$363,865,680.00 |
$8.49 |
28.3% |
Data sources: CNBC, Google Finance, Sean Williams, and author's calculations.
Warren Buffett's company bought shares of Coca-Cola and American Express years ago and has held on to them. That's why it has such a low-cost basis and a high dividend yield on its shares. Buffett's company has benefited from stock price appreciation and dividend growth.
Investors can't replicate those numbers if they bought shares today. American Express currently trades at over $165 per share, while Coca-Cola stock is around $60 per share. At those prices, investors would only earn a 1.4% dividend yield on American Express and 3% on new Coca-Cola shares.
Supercharge your dividend income with these Buffett-like stocks
Investors who want to mirror Warren Buffett's dividend investing strategy can generate a lot more income today (and even more in the future) by buying shares of Verizon and W. P. Carey. The dividend-paying duo offers high-yielding payouts that should continue rising. While Buffett's company doesn't currently own shares, it does invest in telecom companies (Berkshire currently owns shares of T-Mobile) and has invested in net-lease REITs like W. P. Carey in the past (Store Capital).
Why Verizon looks like a potential Buffett dividend stock
Verizon's dividend currently clocks in at around 8%. That's one of the highest dividend yields in the S&P 500, where the average payout is about 1.5%.
NYSE: VZ
Key Data Points
The telecom giant's big-time payout is on an increasingly firm foundation. The company produced $8 billion in free cash flow during the first half of this year, $800 million more than the year-ago period, driven by lower capital spending. That was more than enough to cover its dividend outlay ($5.5 billion for the first six months). Verizon's strong results and falling capex give it a clear line of sight that it will produce $17 billion in free cash flow for the year.
Verizon's growing post-dividend free cash flow is allowing it to strengthen its already solid balance sheet. Verizon's leverage ratio has improved from 2.7 to 2.6 over the past year, further supporting its strong investment-grade credit rating. The company's rising cash flow and declining leverage should allow it to continue increasing its already attractive dividend. The company delivered its 16th consecutive annual dividend increase last year, the longest current streak in the U.S. telecom sector.
Why W. P. Carey looks like a Buffett dividend stock
W. P. Carey's dividend currently yields 6.5%, which is well above average for a REIT. The company generates very steady rental income to support its dividend by owning a diversified net lease real estate portfolio. Those leases provide the REIT with steadily growing rental income. Tenants cover inflation-affected expenses (maintenance, building insurance, and real estate taxes) while lease rates escalate yearly (either at a fixed rate or one linked to inflation). Instead of hurting, inflation is benefiting the REIT. Its rents are growing at historically fast rates, which should continue through next year.
NYSE: WPC
Key Data Points
Meanwhile, W. P. Carey has the balance sheet strength to continue expanding its portfolio through acquisition. The company expects to invest a record $1.8 billion to $2.3 billion in new property investments this year. These new additions will provide it with growing streams of rental income.
The REIT's dual growth drivers should enable it to continue increasing its dividend. W. P. Carey has boosted its payout every year since its public market listing in 1998.
Dividend stocks that Warren Buffett should love
Warren Buffett collects billions of dollars of dividend income each year from stocks like American Express and Coca-Cola. Investors can mirror his strategy by investing in companies that pay attractive dividends that should grow. Verizon and W. P. Carey seem to be the types of dividend stocks Buffett would buy. Given their ultra-high yields and steady growth, they're ideal options for those seeking Buffett-like dividend income streams.
