Investing can be extremely volatile, as experienced this year when the market fell into bear market territory from its highs in February. After recouping those losses it's now approaching near all-time highs.
That's why investors may want to consider adding some dividend stocks that can generate reliable passive income each year. There's no better place to look than in the portfolio of Berkshire Hathaway, the conglomerate run by Warren Buffett that has generated market-crushing returns for over six decades. Investing $25,000 in these two Warren Buffett stocks will generate roughly $1,200 in annual passive income.
Chevron: 4.77% dividend yield
Buffett and his team of investors have been piling into oil and gas stocks in recent years. One of those is the Houston, Texas-based Chevron (CVX 2.47%), which is now the fifth-largest position in Berkshire's massive $283 billion equities portfolio, making up 6% of the portfolio.
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Chevron operates extensive upstream and downstream oil operations with a significant presence in the Permian Basin, and plans to ramp up wells and other projects worldwide. In the Permian Basin, Chevron is projecting 5% to 6% compound annual growth in oil production, along with declining capital expenditures that will lead to $2 billion of free cash flow growth by 2026.
Overall, Chevron expects to increase total free cash flow by $9 billion by 2026, assuming Brent Crude Oil per barrel is in the $60 range. Chevron also hopes to further integrate alternative sources of energy in its business, like renewables, hydrogen, and carbon capture and storage, while lowering the carbon intensity of its downstream operations.
NYSE: CVX
Key Data Points
In addition, the company is a proven dividend payer, having increased its dividend for 38 straight years and paying an extremely healthy dividend yield of nearly 4.8%. With a 12-month trailing free cash flow yield of nearly 5.3%, Chevron can cover its dividend. Remember, the company expects to significantly increase free cash flow between now and 2026. Furthermore, Chevron is repurchasing $10 billion to $20 billion in stock per year, which is also a way to return capital to shareholders.
Sirius XM: 4.80% dividend yield
The large digital audio operator Sirius XM (SIRI 0.71%) has been a dismal investment over the last five years, with the stock down about 59%. The company, which owns Sirius Satellite Radio and the Pandora streaming service, has struggled to grow subscribers amid rising competition from major players like Spotify.
However, Buffett and his team are betting big that management can right the ship, buying up over 35% of outstanding shares. Sirius' management team has a long-term plan to grow subscribers from 40 million to 50 million and free cash flow by 50% from $1.2 billion to $1.8 billion. The plan involves building new in-car technology and launching a new pricing structure. Management also plans to grow its advertising business and has purchased the exclusive advertising and distribution rights of several big-name podcasts.
NASDAQ: SIRI
Key Data Points
Seaport Global analyst David Joyce earlier this year noted the company is a relatively safe pick for investors concerned about tariffs because it has a sticky subscriber base of mainly U.S. consumers. Furthermore, ad revenue still only makes up 20% of Sirius' business and could provide a runway for growth.
The company has a high dividend yield of 4.8% and has paid and increased its dividend every year since 2016. Sirius' trailing-12-month free cash flow yield in excess of 12% should make the dividend easy to cover and increase each year, and Sirius is also conducting share repurchases. The turnaround will require patience, but management has a plan; the stock is cheap, trading at less than 8 times forward earnings, and investors will be well compensated while they wait.
