You might not think Warren Buffett would be a big fan of high-yield dividend stocks. However, a perhaps surprising number of stocks in his Berkshire Hathaway portfolio pay juicy dividends.
Some of those stocks are better choices for investors than others. Here's my pick for the best high-yield Buffett stock to buy right now.
Image source: The Motley Fool.
Several contenders
Berkshire Hathaway currently owns 44 stocks. Nine of them, roughly 20%, offer forward dividend yields of at least 2.58%. This level reflects twice the yield of the S&P 500 and is my threshold for qualifying as a high dividend yield.
Among these high-fielders, Berkshire has the largest stake in Coca-Cola . Coca-Cola ranks as the second largest holding in Buffett's portfolio. Its forward dividend yield is 2.8%. The company is also a Dividend King with an impressive 63 consecutive years of dividend increases.
Bank of America is right behind Coca-Cola as Berkshire's third largest position. The bank stock offers a forward dividend yield of 2.62%, just over the threshold needed to meet my definition of a high yield. Three financial stocks are also in the mix. Ally Financial's forward dividend yield is 3.61%. Citigroup's dividend yields 3.29%, while Jefferies Financial pays a dividend yield of 3.45%.
Coke isn't the only consumer goods stock in Buffett's portfolio with an exceptional dividend yield. Berkshire owns 27.3% of Kraft Heinz. The food maker's forward dividend yield is a lofty 5.41%.
Sirius XM Holdings is arguably Buffett's favorite high-yield dividend stock these days, though. The legendary investor has loaded up on the satellite radio operator in recent quarters. Sirius XM offers a forward dividend yield of 5.06%.
Berkshire owns only $25.4 million worth of Diageo, which amounts to pocket change for Buffett's conglomerate. The alcoholic beverage maker's forward dividend yield is 3.71%.
The best high-yield Buffett stock
None of those contenders is my pick for the best high-yield Buffett stock, however. That honor goes to Chevron (CVX +2.91%).
NYSE: CVX
Key Data Points
Why Chevron? First, the oil and gas giant pays a forward dividend yield of 4.92%, enough to make it the third highest-paying dividend stock Buffett owns. Even better, the company has increased its dividend for 38 consecutive years. I fully expect that streak will continue for years to come.
Chevron's shares trade at 14.5 times forward earnings. Although this forward earnings multiple isn't as low as some other Buffett stocks (for example, Sirius XM trades at 7.3 times forward earnings), it's a reasonable valuation in my view.
Most importantly, I view Chevron's business as solid. The company generated earnings of nearly $17.7 billion last year. Its free cash flow totaled $15 billion. Chevron expects to add another $10 billion or so in free cash flow by 2026, leading the industry in growth.
The company remains committed to further stock buybacks. How many shares it repurchases will depend largely on oil prices. However, even with oil priced at $50 per barrel, Chevron thinks it will still be able to deploy capital to buy back shares.
Long-term demand for oil and gas could be better than you might think, even with the rising adoption of renewable energy. Chevron is also positioning itself well for the future with significant investments in renewable fuels, hydrogen, and carbon capture and storage technology.
An iffy near term
If I were only thinking about the near term, I'd probably choose another high-yield Buffett stock such as Coca-Cola. Chevron could face some challenges over the next year or so if the economy stumbles as a result of President Trump's tariffs. Some economists believe tariffs have increased the chances of a recession. A significant economic downturn could negatively impact the short-term demand for oil and gas, which would hurt Chevron's revenue and profits.
However, I prefer to focus on the long term. Chevron should perform quite well over the next decade and beyond, in my opinion. And the company should keep those juicy dividends flowing and growing.
