Legendary investor and multibillionaire Warren Buffett has spent six decades leading Berkshire Hathaway. The company hasn't paid a dividend to shareholders for almost its entire existence, but don't let that trick you into believing that Buffett doesn't like dividend stocks.
In reality, Buffett loves receiving dividends -- just not paying them.
If you look at Berkshire Hathaway's $280 billion-plus stock portfolio, the top eight holdings represent about 75% of the portfolio -- they all pay dividends. A company that pays a growing dividend is typically healthy and profitably growing, which is music to the ears of long-term investors like Buffett. Dividends also represent firm returns, cash in hand, without needing to sell any shares.
Here are his five top dividend picks, ranked by their position size in Berkshire Hathaway's portfolio, and how they can bring stability to your portfolio.
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1. Apple
The iPhone revolutionized the technology sector and made Apple (AAPL -2.88%) one of the world's largest companies. Berkshire Hathaway didn't invest in Apple until roughly a decade after the first iPhone launched, but it's still been one of Buffett's best picks. It's still Berkshire's largest holding despite Buffett trimming much of his stake last year for a hefty profit.
There are over 2.35 billion active iOS devices worldwide. Apple's user base is a massive distribution network for subscription services, consistently generating huge revenue streams as people upgrade old devices. Apple reinitiated its dividend in 2012 and has raised it every year since. Buffett has referred to Apple as Berkshire's best stock and quipped that people would rather give up their second vehicle than their iPhones.
2. American Express
U.S. consumers love credit cards, which has made American Express (AXP -0.53%) a lucrative investment for Berkshire. Berkshire has owned it since Buffett bought the stock in 1991. Credit cards represent easily accessible capital, and American Express has built its brand around businesses and high earners.
The company is a lender and, therefore, sensitive to the economy. It has opted against dividend increases during tough times to protect its business and has only cut the dividend once in the late 1990s. However, American Express' dividend generally grows over time and is one of Buffett's longest-standing investments.
3. Coca-Cola
Iconic beverage giant Coca-Cola (KO 1.03%) is a favorite of Buffett, who has drunk Coca-Cola products in front of cameras numerous times. Berkshire has owned Coca-Cola since 1988, and the stock is a Dividend King with a whopping 63 consecutive annual dividend raises.
The company grows slowly and steadily, selling dozens of brands to billions of consumers worldwide, many of whom still don't drink packaged beverages regularly. Coca-Cola develops new products, acquires emerging brands, and has unmatched distribution on a global scale. There is an ocean of opportunity for gradual expansion, making Coca-Cola a good bet to continue growing and raising its dividend for the foreseeable future.
4. Bank of America
Buffett traded in and out of Bank of America (BAC -0.25%) around the 2007-2009 financial crisis, but ultimately struck a deal for preferred stock in 2011. He later used warrants to buy common shares, making America's second-largest bank a core holding in Berkshire's portfolio.
Bank of America is a financial catch-all for the U.S. and global economies. With over $3.3 trillion in assets, it spans consumer and commercial banking, financial markets, student loans, mortgages, bonds, and more. Bank of America reinstated its dividend after it recovered from the financial crisis, arguably the worst period for banks since the Great Depression, and has raised it for the past 11 years and counting.
5. Chevron
Buffett has an affinity for the energy sector; Berkshire operates an energy subsidiary, with numerous pipelines, utilities, and other infrastructure. In late 2020, Buffett and Co. pounced on Chevron (CVX 1.06%) when the pandemic sent oil prices below zero for the first time and oil stocks spiraling to generational lows. Buffett picked well; Chevron is an integrated oil major with exploration and refining operations, and navigated the pandemic well enough to maintain its dividend growth streak.
Chevron is one of the few oil and gas stocks that could eventually become a Dividend King; the company has raised its dividend for 37 consecutive years and counting. The pitch for Chevron is simple: The modern world depends on energy, and oil and gas remain in high demand, despite growth in renewables over the years. Plus, Chevron yields nearly 5%, making it a cash cow for Berkshire Hathaway.
