Berkshire Hathaway CEO Warren Buffett has done an incredible job guiding his company to market-crushing success through the decades. Today, the investment giant has a market capitalization of more than $786 billion, ranks as the world's eighth-largest company, and has a stock portfolio worth roughly $360 billion.
Much of Buffett's investing success has come from backing top blue chip stocks -- highly regarded companies that have many years of profitable operations under their belt and regularly pay dividends to shareholders. With that in mind, read on for a look at the two blue chip stocks that Warren Buffett has incredible confidence in.
1. Apple
Apple (AAPL -0.35%) accounts for an eye-catching share of Berkshire Hathaway's total stock portfolio. Buffett's company first began investing in the mobile hardware leader in 2016, and it has continued to regularly buy shares through the years. Today, Apple stock accounts for 45.6% of Berkshire's portfolio -- making it the company's biggest stock holding by a wide margin.
Not only does Apple consistently serve up profits, it often ranks as the world's most profitable company. The blue chip tech company's dominant position in the smartphone market has been and continues to be the biggest driver of its success.
Thanks to its incredible brand strength and ability to reliably deliver products that delight consumers, the company's iPhone now accounts for roughly 55% of total smartphone unit sales in the U.S. Globally, the company is capturing 45% of total revenue in the category.
But just looking at the unit sales picture would actually undersell how powerful Apple is in the mobile market. The tech giant's iPhones account for 85% of total operating profits on smartphone sales worldwide. While most other players in the space have been pressured by commodification trends, Apple's sales cut and profitability in the category have continued to increase through the years.
And even though the iPhone is undoubtedly the centerpiece of the business, Apple is far from being a one-trick pony. In addition to other hardware devices including tablets, computers, and wearables, the company also has a highly profitable software and services business. The segment now has more than 1 billion subscription customers globally and recorded revenue of $21.8 billion last quarter -- about 26% of the $81.8 billion in sales posted in the period.
AAPL Dividend data by YCharts
Incredible sales and profits also helped Apple ramp up the amount of cash it returns to shareholders. The company has raised its payout 153.6% since initiating a dividend in 2012, and 84.6% since Berkshire started buying the stock in Q1 2016.
Apple's incredible share price gains mean that the company's dividend yield has been pushed down to roughly 0.5%. But additional payout increases will mean that Buffett's company will continue to enjoy rising yield on shares it's already purchased.
2. Bank of America
Bank of America (BAC -0.21%) ranks as Berkshire's second-largest stock holding and currently accounts for 8.9% of the investment giant's portfolio. With a dividend yield of about 2.9%, it's also one of Buffett's biggest income generators.
Berkshire Hathaway currently owns more than 1.03 billion shares of B of A stock. Based on the bank's current annual dividend payout of $0.96 per share, Berkshire will receive just under $1 billion in annual payouts from its position. Given that Bank of America is such a large holding and cash generator for Berkshire, it's interesting to note that Buffett actually sold all of his company's position in the stock back in 2010.
At the start of the last decade, Bank of America was struggling as it dealt with conditions related to the financial crash and the Great Recession. In response to the challenges at hand, the company slashed its dividend, and Buffett closed out Berkshire's position in the stock in the fourth quarter of 2010.
But the Oracle of Omaha got in contact with Bank of America's CEO the following year to offer an investment olive branch that would provide the financial giant with some funding support. Berkshire wound up purchasing $5 billion worth of the company's preferred stock and received warrants to purchase 700 million shares of common stock at a price of $7.14 per share.
BAC Dividend data by YCharts
Roughly six years later, Bank of America stock was trading above $24 per share. Buffett exercised the warrants and immediately scored a massive paper profit on the deal. The move made his company Bank of America's largest shareholder. Berkshire has continued to increase its stake through the years, and it's continued to benefit from the bank's return to dividend growth.
