Although Warren Buffett has never explicitly spelled out his investment approach, he has provided a summary of it. Essentially, Buffett's approach is to buy well-run companies while they are attractively priced, and then hold for the long term. That's what he did with the high-yield stock featured below, and you can do so too, now that it appears attractively priced again.
Which Buffett stock should you buy?
Buffett owns a portfolio of stocks within Berkshire Hathaway (BRK.A +0.85%)(BRK.B +0.74%), his primary trading vehicle. One of the most attractive right now is integrated energy giant Chevron (CVX 0.48%). It is a stock that Buffett has owned for many years, but given the laggard performance of the energy sector of late, Chevron again looks like an attractive purchase. In fact, Chevron has even been lagging behind the broader energy sector.
Image source: The Motley Fool.
The end result is that Chevron's 4.5% dividend yield is near the high end of the stock's historical yield range. That suggests that Chevron's stock price is attractive right now.
To be fair, the yield has been higher in the past, but the yield peaks tend to be during deep energy price downturns. While it would clearly be more opportunistic to buy when Chevron is deeply unloved, it is very hard to time such industrywide events (and even more difficult to take a contrarian stance and buy when they come along).
Buying Chevron today offers you an attractive entry point to make a small investment, say $1,000. And you are buying one of the best-run energy companies in the world. If the stock drops further from here, you have your foot in the door, and it will be easier from an emotional standpoint to buy more.
What you are buying when you buy Chevron
Chevron is what's known as an integrated energy company. That means the business has exposure to the entire energy value chain, including the upstream (energy production), midstream (pipelines and other transportation assets), and downstream (chemical and refining). Each segment performs slightly differently throughout the energy cycle, which helps to smooth out Chevron's performance over time.
The portfolio is also geographically diverse. Chevron is based in the United States, but it has assets worldwide. This, along with its diversified exposure within the industry, allows the company to make capital investments where management believes they will provide the best returns.
NYSE: CVX
Key Data Points
Chevron also has one of the strongest balance sheets among its peer group. The debt-to-equity ratio is currently around 0.22x, which would be low for any company. For Chevron, however, it gives management the flexibility to add leverage during industry downturns so the company can both support its business and its dividend despite weak oil and gas prices.
One of the biggest reasons why dividend investors will appreciate Chevron, however, is its consistent dividend growth. The dividend has been increased annually for 38 consecutive years. Given the inherent volatility of the energy sector, that's an incredible dividend streak. Add that streak to the yield and attractive business model, and it should be hard to say no to this Warren Buffett stock.
You should have some energy exposure
The primary objection to Chevron is likely to be the volatility of the energy sector. That's entirely reasonable; however, Chevron is one of the safest ways to invest in the sector. The key for investors is to keep in mind that energy is vital to the world, and as such, it is advisable to have some exposure to it in your portfolio.
If you do decide to add some energy exposure, Chevron, a longtime Buffett holding, is a very attractive way for dividend investors to round out their portfolios right now. With a commitment of $1,000, you can start your energy toehold with roughly six shares of Chevron.
