Warren Buffett's company Berkshire Hathaway has never paid shareholders a dividend while under Buffett's leadership. The primary reason is because Buffett believed he could find better ways to invest the capital -- and he was definitely right. Berkshire's returns have crushed the broader benchmark S&P 500 index over many decades, and many people regard Buffett as the best investor of all time.
While never paying a dividend, Buffett and his team of investors have never been afraid to invest in high-yielding stocks. They often look for companies in turnaround mode -- but they pay nice dividends to compensate investors for their time. Buffett and Berkshire own nine high-yielding stocks. Here's the best of the bunch.
Image source: Motley Fool.
Three are top 20 positions
Three of Berkshire's top 20 equity holdings warrant attention: Kraft Heinz (KHC 0.90%), Sirius XM (SIRI +1.15%), and Chevron (CVX 0.95%), which have dividend yields of roughly 5.6%, 4.5%, and 4.5%, respectively.
Kraft Heinz is largely viewed as one of Buffett's most disappointing investments. Buffett first acquired a stake in Heinz in 2013 when he partnered with the Brazilian private equity firm 3G to buy the company. The two parties then worked together in 2015 to merge Kraft and Heinz in a $49 billion transaction.
Since then, the stock hasn't performed well and is down another roughly 4.7% this year (as of July 23). More recently, Berkshire has given up its seats on the board at Kraft Heinz and there is speculation that the company may soon break up.
Sirius is a position that Berkshire added to heavily in recent years. The large digital audio company, which owns Sirius XM and the Pandora music streaming business, is considered one of the few legal monopolies but it looks like it will have a lengthy turnaround ahead after declining 30% during the past year.
The large U.S. oil and gas producer Chevron is part of a growing number of energy assets that Buffett and Berkshire have gobbled up in recent years. Berkshire clearly thinks the price of oil is going higher long term and may also view energy as an asset that will be in high demand during the coming decades. Chevron, which is down about 4% during the past year, has increased its dividend for 38 straight years and is certainly a dividend gem.
Buffett's "secret portfolio"
While you can't see Buffett's other seven high-yielding dividend stocks in Berkshire's filings, the company, in essence, has a "secret portfolio" in New England Asset Management (NEAM), which is not directly managed by Berkshire. In 1998, Berkshire came to own NEAM via its acquisition of General Re, which bought NEAM in 1995.
Here are the seven high-yielding dividend stocks in NEAM and their perspective dividend yields (as of July 23):
- Golub Capital BDC (GBDC +1.03%) -- 10.2%
- Ares Capital (ARCC +0.44%) -- 8.4%
- Pfizer -- 6.8%
- Realty Income (O +0.87%) -- 5.6%
- Bristol Myers Squibb -- 5.2%
- Campbell's -- 4.8%
- Lamar Advertising -- 5%
You'll notice a few themes in this bunch. Golub and Ares are business development companies (BDCs), which are known for paying high dividends due to their unique corporate structure as regulated investment companies. If these companies pay out at least 90% of their taxable income to shareholders through dividends, they avoid paying corporate taxes.
As a real estate investment trust (REIT), Realty Income has the same deal. Pfizer and Bristol Myers are both pharmaceutical stocks, which can also pay hearty dividends.
The best of the bunch
Although its stock has not performed great during the past five years, Realty Income is the best of the bunch, in my opinion, especially from an income perspective. Sure, there are some REITS and BDCs with much higher yields, but their payouts can fluctuate with earnings.
As a REIT, Realty Income stands out in terms of consistent performance. It mainly operates a triple-net-lease model in which it rents its properties to tenants who pay maintenance and upgrade costs, property taxes, and insurance. In return, tenants may be able to negotiate more favorable terms and also have more control over the spaces they rent, which can be helpful for businesses.
NYSE: O
Key Data Points
Realty Income specifically focuses on non-discretionary, low-price-point, and service-oriented tenants like 7-Eleven, Dollar General, and Walgreens, among many others. The company is also getting involved in higher-growth sectors, like gaming and data centers, while also looking to expand its geographic reach in Europe.
As for the dividend, Realty Income is as reliable as they come, which is perhaps why the company's slogan is, "The Monthly Dividend Company." Since going public in 1994, Realty Income has increased its quarterly dividend for 110 consecutive quarters. The dividend has grown at a 4.3% compound annual growth rate and looks very sustainable.
In 2024, Realty Income paid out about $3.13 of dividends per share and generated adjusted funds from operations (AFFO), which is basically like cash flow for REITs, of $4.19, giving it room to spare.
