Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett is widely regarded as the greatest investor of all time.
The conglomerate he leads has trounced the broader market over its history, helped by his stock-picking acumen. Over his career, he's shown a clear preference for dividend stocks, which have paid off handsomely thanks to his buy-and-hold approach.
If you're looking to follow Buffett's lead and make investments with huge passive income potential, keep reading to see two dividend stocks worth buying today.
Image source: The Motley Fool.
1. Bank of America
Buffett's favorite area to invest in has long been the financial sector. He prefers businesses that are predictable, produce tons of cash, and where he can project future cash flows. Banks and insurance companies often fit the bill.
These days his favorite bank stock is Bank of America (BAC -0.21%). It's Berkshire's second-biggest holding after Apple, and Buffett has lauded CEO Brian Moynihan on multiple occasions, saying he likes him "enormously" and that he avoids doing "dumb things."
Bank of America also looks like a great stock to buy right now. The stock is trading at a price-to-earnings ratio of just 8, essentially the cheapest it's been in the last decade.
The company delivered a third-quarter earnings report that included growth on the top and bottom lines, and it reported organic growth across all of its business segments.
Its shares seem to be trading at a discount because of the prospect of a recession, but Moynihan said on a recent earnings call that it now expects a "soft landing," meaning the economy will avoid a recession. Additionally, management expects net interest income to grow next year, which will support overall profit growth, especially if the economy improves.
Bank of America stock currently offers a dividend yield of 3.5%, and the company has been steadily buying back stock as well. The company has been raising its dividend over most of the last decade, and there's potential for it to grow considerably as its dividend payout ratio is only around 30% right now.
As the No. 2 bank by assets in the country, Bank of America should continue to grow as the economy expands. Investors can reap the benefits of a 3.5% yield, an increasing dividend, and a good chance for earnings multiple expansion as the economy improves, lifting the stock price.
2. Procter & Gamble
If you're looking for a classic Buffett stock on the consumer side, it's hard to find a better candidate than Procter & Gamble (PG -0.78%). The diversified household products giant has been around for nearly 200 years, and is a Dividend King, having raised its dividend every year for 67 years. It's also paid a dividend for 133 years. As the company that sells Tide detergent, Gillette razors, and Crest toothpaste, Procter & Gamble is about as much of a recession-proof stock as you'll find.
P&G has capitalized on the recent inflationary environment. The company posted 7% organic sales growth in fiscal 2023, which ended in June. In the fiscal fourth quarter, earnings per share rose 13% to $1.37, a strong showing for a mature company in a slow-growth industry.
Foreign exchange has been a headwind for the company, but that should soon reverse as we lap the peak of the dollar's strength roughly a year ago.
Meanwhile, the company has delivered impressive profitability improvements due to productivity savings. During the fiscal fourth quarter, gross margin increased 380 basis points with the help of price increases and increased productivity. For fiscal 2024, the company is targeting 7.5% earnings-per-share growth and organic sales growth of 4%-5%.
For dividend investors, P&G currently offers a dividend yield of 2.6%, and it trades at a P/E of 23 based on this year's guidance. Investors can expect steady dividend hikes and reliable growth to continue from P&G. After all, it's not an accident that it's paid dividends for more than a century.
