Warren Buffett, CEO of Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%), is one of the most successful investors of all time. Since taking over the once-struggling textile company in 1965, Buffett and his team have generated total returns on capital 153 times greater than those of the benchmark S&P 500. He was schooled in the art of value investing from Benjamin Graham, the author of the iconic investing tome The Intelligent Investor, and subsequently adapted it to fit his style.
Buffett's slight modifications to Graham's quantitative, value-based investing model include a heavier emphasis on management quality, a company's competitive advantages, and more often than not, a company's dividend growth potential. Not all of Berkshire Hathaway's stock holdings pay dividends, but most of the conglomerate's largest and longest holdings are blue chip dividend payers with a long track record of regular increases to the payout.
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Which Warren Buffett dividend stocks stand out as top buys in 2024? Due to their formidable economic moats and impressive history of dividend raises, Visa (V -0.23%) and American Express (AXP -0.62%) both screen as outstanding buys right now. Read on to find out more about these two blue chip dividend stocks.
1. Visa
Visa is a global titan in the electronic payment services industry. It is also a top 20 Berkshire stock holding, with the conglomerate's position worth about $2.16 billion at the moment.
Visa fits the mold of Buffett's investing style to a T. Speaking to this point, it has a strong competitive advantage in the electronic payment services market. The company's competitive moat has even been labeled as "unassailable" by the investment firm Morningstar. Moreover, Visa has increased its dividend payments at a remarkable compound annual growth rate (CAGR) of 19.1% over the last 17 years.
Visa's dividend program also screens as extremely safe. It has a fairly low payout ratio of 21.7%, and the company is forecast to grow its top line by more than 31% over the next two years. Visa should thus have no problem boosting its cash distributions to shareholders in the years to come.
The only minor downside is that the stock's yield is only 0.8%, which is about half that of the average S&P 500-listed stock. However, Visa's stock is highly likely to continue its recent winning streak due to the ongoing shift from cash to digital payments worldwide, which should more than compensate for its low yield.
2. American Express
Berkshire has been a loyal shareholder of American Express, or Amex, since the early 1990s. Currently, the credit card and payment services company is the conglomerate's third-largest holding, after Apple and Bank of America.
Why has Berkshire held on to this credit card stock for so long? One likely reason is its competitive edge, which comes from its distinctive business model. Unlike other credit card issuers that rely mostly on interest income, Amex makes about 80% of its revenue from fees charged to cardholders and merchants.
Another reason is its loyal customer base, which consists of affluent individuals and businesses that use their cards frequently for high-dollar purchases such as travel and entertainment, generating more transaction fees for Amex.
As for dividends, Amex has been increasing the size of its dividend checks at a CAGR of 8.4% over the past 20 years. Although the company's yield of 1.28% is below average, it sports a low payout ratio of 26.6% and a solid revenue growth outlook for 2024 (around 9.5%). Hence, its dividend growth potential is superb, to put it mildly.
Keeping with this theme, Buffett noted in Berkshire's latest annual letter that Amex is "highly likely" to continue to increase its cash distributions to shareholders in the years to come.
