When the stock market is roaring higher, it's easy to lose sight of the value that safe dividend stocks provide. Warren Buffett-led Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) is an icon in the investing world. But dig deeper, and you'll find that Berkshire Hathaway owns and operates a lot of very boring businesses, including railroads, energy companies, and utilities.
Many of the public companies that Berkshire has shares in also lack the glitz and glamor that comes with popular growth stocks. Buffett has long recognized that some of the best investments are the ones that are able to dominate an industry and compound their value over time. Chevron (CVX 0.37%), Coca-Cola (KO), and Louisiana-Pacific (LPX -0.33%)are three prime examples of somewhat boring but ultra-safe stocks. Here's what makes each a great buy now.
Image source: Getty Images.
Conservative investors can consider Chevron to energize their portfolios
Scott Levine (Chevron): While the market's impressive performance so far in 2023 has delighted many investors, it's always a prudent strategy to fortify one's holdings with conservative stocks that can provide some stability. With this in mind, choosing to pick up shares of oil supermajor Chevron could be a great move. This company is not only an energy industry stalwart but also one that the Oracle of Omaha himself endorses -- and it offers an attractive forward dividend yield of 3.9%.
Considering there's a strong correlation between the price of oil and the movement of oil and gas stocks like Chevron, investors may balk at the thought of picking up shares of Chevron right now. The price of West Texas intermediate (WTI) crude oil is up about 3% in 2023, and it's logical to suspect that Chevron's stock has risen accordingly. But think again. Shares of Chevron are actually down more than 10% year to date. Instead of the company's poor performance, the stock's drop seems to reflect the market's fear that energy prices are headed lower and that a recession could be looming.
This general pessimism regarding Chevron's stock provides a great opportunity for forward-looking investors. Chevron has ample potential to grow its business in the Permian Basin. Over the next 15 years, for example, Chevron forecasts daily net production of more than 1 million barrels of oil equivalent in the Permian Basin -- a target that contributes to making Chevron one of the most compelling oil and gas dividend stocks out there. And with the stock trading at 7.4 times operating cash flow, today seems like a great time to click the buy button.
Coca-Cola is a textbook example of making a plan and executing it to perfection
Daniel Foelber (Coca-Cola): Far and away one of the most iconic Warren Buffett stocks is Coca-Cola. Berkshire Hathaway began buying shares of the beverage company 35 years ago. And in many ways, Coke is buy-and-hold investing at its finest.
The company has paid and raised its dividend for 61 consecutive years, making it one of the longest-tenured Dividend Kings out there. Coke has benefited from a global presence, an incredibly strong brand, and impressive execution when it comes to product development and acquisitions.
In 1960, Coca-Cola expanded beyond soft drinks with the purchase of Minute Maid. It proved to be a brilliant investment, as Minute Maid has since developed a variety of other juice brands, most notably the Simply brand line.
In 2017, Coke bought sparking mineral water company Topo Chico for just $220 million, an absolute bargain in hindsight.
Fast-forward to 2018, and Coke bought a 15% stake in Bodyarmor before eventually acquiring the entire company in 2021.
What makes Coca-Cola such an effective company is its ability to take a brand to new heights. Topo Chico is a great example. What started out as Texas mineral water has now rapidly expanded across the United States. Topo Chico has developed several other flavors and now sells Ranch Water Hard Seltzer, which is available in several states.
After an excellent performance in 2022, Coke is heavily underperforming the market in 2023 and is down 5% year to date. With a 3% dividend yield, Coke is one of the safest ways to collect passive income from a company that's a true beverage titan and has a track record of executing its strategy far beyond just soft drinks.
This wood-products company has an opportunity to grow its market share
Lee Samaha (Louisiana-Pacific): If you're worried about where a company's revenue is going in the next quarter or the following year, it's unlikely you'll see Berkshire Hathaway holding Louisiana-Pacific as an "ultra-safe" stock. On the other hand, Louisiana-Pacific could be for you if you like the long-term potential of the housing market and believe that wood siding and oriented strand board (OSB) have a crucial role to play in new housing construction and remodeling activity.
The company is the leading producer of engineered wood siding and a top producer of OSB. As such, its fortunes are tied to the housing market -- so it's no surprise to see the stock recently reported harsh trading conditions.
That said, interest-rate increases won't last forever, and it's worth noting that housing starts are significantly below where they were in the 2000s, before the housing bubble burst.
Data by YCharts
Moreover, its sustainably sourced and environmentally friendly engineered wood siding has an opportunity to grab market share from materials such as vinyl and cellular PVC. Meanwhile, OSB continues to win market share from plywood as the panel material of choice among architects.
Suppose the summer of 2023 proves to be a multiyear low for the housing market. In that case, Louisiana-Pacific shareholders are set to enjoy a multiyear recovery, which will probably include dividend increases.
