Warren Buffett is considered to be the greatest investor of all time.
Since he bought a textile firm called Berkshire Hathaway (BRK.A +0.10%) (BRK.B +0.06%) and turned it into a holding company in 1965 that would buy other businesses outright or take equity stakes in them, his company's stock has generated a compound annual growth rate of almost 20%, double the average annual return of the S&P 500 over that time.
Berkshire Hathaway, however, doesn't pay dividends. Buffett has said many times that a company should pay its profits out to shareholders via dividends only if it can't find a way to reinvest that money profitably. And the returns Berkshire has delivered to shareholders make it clear that the Oracle of Omaha can almost always find better ways to use that money -- and generate higher share prices for shareholders -- than cash payouts.
The dividend test
"The test about whether to pay dividends is whether you can continue to create more than $1 of value for every dollar you retain," Buffett has said. But that doesn't mean Buffett doesn't like to receive dividends. In fact, if you look at Berkshire's extensive portfolio, it's clear he loves them.
So, for investors looking for high-yielding, safe stocks that come with Buffett's imprimatur, there's no shortage of stocks to buy. Here are seven stocks that Berkshire has major stakes in that pay dividends well above the 1.7% yield of the broader S&P 500 companies.
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Chevron (CVX +1.71%). Berkshire made its initial investment in the energy giant in 2020 and has been buying and selling ever since. It's one of Buffett's most actively traded holdings, and it has an attractive 4.5% yield.
Coca-Cola (KO 1.37%). Buffett began buying the iconic beverage company's shares after 1987 because he believed it was undervalued. It has a yield of 3.04%.
Kroger (KR +0.06%). Berkshire first invested in the grocery-store chain in early 2020. Its yield is 2.03%.
Mitsubishi (MTSU.Y 0.34%). Berkshire got into the Japanese trading house (and four other conglomerates like it) in 2019 as part of a major move into Japanese equities. Part of the strategy involves hedging currency risk by selling Japanese debt and pocketing the difference between dividends from the investment and the payments on the debt. Mitsubishi's yield is 2.83%.
Itochu (ITOCY 0.55%) is another Japanese conglomerate that Buffett bought shares of in 2019. Ever the opportunistic investor, Buffett liked these companies partly because he considered them undervalued. Itochu's yield is 2.41%.
Bank of America (BAC +1.49%). Berkshire made its initial investment in BofA in August 2011 by purchasing preferred stock and warrants. It converted the warrant to common stock in 2017. The stock's yield is 2.14%.
Occidental Petroleum (OXY +0.15%) became part of Berkshire's massive portfolio in 2019 with a $10 billion loan in exchange for preferred stock and started buying common stock in 2022. The stock's yield is currently 2.29%.
These companies are among Berkshire's largest holdings, though its two biggest stakes are in Apple and American Express. Both of those have dividend yields under 1%.
So, Buffett is indeed a fan of dividends, and many stocks he's had Berkshire invest in pay handsome yields. Of course, dividends aren't the only factor. As you can see from the transactions above, Buffett is extremely clever and sees opportunities that many other investors miss. And of course, he's the ultimate value investor, always looking for companies the market underestimates.
As for the companies he invests in, it's usually for the long haul. Buffett looks for outstanding businesses with outstanding management, and his ideal holding period, he's said, is "forever." Buffett plans to retire at the end of this year. Retired or not, other investors will continue to learn from his deft investment strategies.
