When Warren Buffett steps down as the CEO of Berkshire Hathaway at the end of this year, he will leave behind a legacy as perhaps the greatest investor of his time. As of the end of 2024, Berkshire Hathaway stock had gained an astounding 5,502,284% since Buffett took it over, and one way he turned it into a trillion-dollar company was by investing not in hot growth stocks, but strong value stocks.
One feature Buffett loves in a stock is a dividend. Paying dividends suggests a company is mature, stable, and committed to rewarding shareholders -- all attributes that reinforce an investment thesis. Not all of the stocks in Berkshire Hathaway's $276 billion equity portfolio pay dividends, but most do.
Its top three holdings -- Apple (AAPL 0.76%), American Express (AXP -0.43%), and Coca-Cola (KO 0.98%) -- all do, and together, they account for almost half of the portfolio. Let's consider what makes them such winners by Buffett's standards.
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Apple: 21.4% of the Berkshire Hathaway portfolio
Buffett only started a position in Apple in 2016, but it quickly moved into the top spot in the portfolio, reaching about 50% before Buffett and his team started selling some of it off last year. It now takes up a more reasonable amount of space, but it's still the largest position. Buffett said that Apple is an even better business than his perennial favorites, Coca-Cola and American Express, and he jested that CEO Tim Cook has made Berkshire Hathaway a lot more money than he ever has.
Apple fans love its user-friendly, innovative, and tech-strong products, and it has created an ecosystem of devices and services that work together, generating loyalty and additional sales. Shoppers typically upgrade over time to newer versions of their favorite products, keeping them in the ecosystem.
Like many tech giants, Apple is investing in artificial intelligence (AI), and it's developing its exclusive brand, Apple Intelligence, that offers a premium experience as part of the Apple package. Management expects AI to be an important growth driver for the next generation of Apple products. Investors have been worried about how tariffs will impact Apple's business, because iPhones are largely made in China, but management is working on long-term efforts to move more of its production to other countries to mitigate the impact of that part of the trade war.
Apple's dividend doesn't have a particularly high yield -- at 0.5%, it's well below the average yield for the S&P 500. However, management has been hiking the payout slowly and steadily every year for more than a decade, demonstrating its commitment to rewarding shareholders.
American Express: 15.9% of the Berkshire Hathaway portfolio
Buffett loves financial stocks, but American Express is his favorite. He appreciates its global brand and excellent management, and he tends to favor companies with varied earnings streams.
As a bank that targets more prosperous individuals and small businesses, as well as a credit card network with fee-paying customers, American Express has several levers it can push to make money, and its excellent reputation and premium products attract affluent consumers whose finances tend to be more resilient even when the broader economy is under pressure.
It has successfully captured a younger cohort of consumers who are driving its growth today and represent its future potential. Millennials and Gen Z customers accounted for 35% of its total U.S. consumer services billed business in the first quarter, and sales from that cohort increased by 14%, in comparison with a 7% overall gain.
American Express continues to generate robust sales growth despite the challenging macroeconomic environment. Sales rose 8% year over year in the first quarter (on a currency-neutral basis) and earnings per share (EPS) rose 9% to $3.64. Delinquency ratios have stayed at 1.3%, with net write-offs at 2.1%.CEO Stephen Squeri credited that to the company's stellar risk management, which it has developed over its 150 years of operation, and its high-quality customers.
American Express' dividend yields 1% at the current share price, and it's growing and reliable.
Coca-Cola: 10.2% of the Berkshire Hathaway portfolio
Coca-Cola stock is currently the longest-tenured holding in Berkshire Hathaway's portfolio, and it's crushing the market this year.
Investors consider it a safe stock because the company sells some of the world's favorite beverages, and people will continue to drink them even in times of economic uncertainty. With a portfolio of about 200 brands, it has something for everyone, although its core Coke-branded franchises drive its high sales.
It has demonstrated strength over the past few years despite economic volatility, and after restructuring and slashing the brand portfolio from about 400 brands pre-pandemic, it has become more efficient and agile, and better able to weather the current storms.
One factor that particularly favors Coca-Cola this year is that it has limited exposure to tariffs. Most of its products are produced and bottled in or near the countries in which they are sold, so it doesn't rely as much on imports or exports. CEO James Quincey said that the impact of new tariffs would be minimal and that the company has many ways to offset those higher costs. This is how investors can test the company's resilience, and it's a manifestation of what Buffett has long praised it for.
The dividend is a major part of that, too. Coca-Cola is a Dividend King with 63 years of consecutive payout increases, a streak that's hard to top. At the current share price, the dividend yields 2.7% -- more than double the S&P 500's average yield. Coca-Cola isn't a growth stock, but it offers incredible value, reliable passive income, and protection for challenging times.
