Please ensure Javascript is enabled for purposes of website accessibility

Put Warren Buffett in Your Corner

By Motley Fool Staff – Updated Apr 6, 2017 at 2:58AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here's how.

Dividend stocks may be the best way to follow Warren Buffett's famous rules:

Rule No. 1: Never lose money.
Rule No. 2: Never forget rule No. 1.

But that shouldn't be surprising. Playing the part of the investor whose aim is to never lose money is to study businesses that rule boring industries, make real products, and earn heaps of cash flow. More often than not, these types of stocks also offer generous dividend yields.

Consider Buffett's portfolio. Plenty of the stocks held by Berkshire Hathaway yield more than the S&P 500 average of about 3.2%. Here's a sampling:

Company

Current
Dividend Yield

American Express (NYSE:AXP)

4.5%

Coca-Cola (NYSE:KO)

3.7%

UPS (NYSE:UPS)

4.0%

Kraft Foods (NYSE:KFT)

4.6%

ConocoPhillips (NYSE:COP)

4.1%

Constellation Energy (NYSE:CEG)

7.5%

Wells Fargo (NYSE:WFC)

8.3%

Sources: SEC filings, Yahoo! Finance.

Get 97% of the market's returns automatically
Surely, some of this is coincidence. Berkshire has billions to invest. Buffett and curmudgeonly partner Charlie Munger are unlikely to buy stock in anything but the largest large caps, and large caps are always more likely to pay dividends.

Nevertheless, research conducted by Dr. Jeremy Siegel shows that 97% of the stock market's return from 1871 to 2003 can be traced to dividends. I think we can fairly give superinvestors like Buffett and Munger credit for following a smart strategy, even if they don't follow it to the letter. Buffett and Munger, you see, don't reinvest dividends as Siegel's research suggests you should. They've done better by investing cash from dividends into their best ideas.

But what's good for them isn't necessarily good for you. That's why many of America's millionaires are buying, holding, and reinvesting in the stocks of sturdy businesses that have a history of increasing their dividend payouts. It's a no-brainer way to get rich. Really rich.

From Buffett's portfolio to yours
I'll not pretend that owning dividend-paying stocks makes you like Buffett or Munger. It doesn't. But isn't it nice to know that if you do choose to invest in cheap dividend payers, you're in good company?

That's how my Foolish colleague James Early sees it. As lead advisor for Motley Fool Income Investor, James seek stocks that pay substantial dividends but also trade for a discount to their real worth.

Several of its current selections are also Buffett picks, including UPS and Kraft. Take a 30-day free trial to Income Investor today to discover the identities of the others. There's never an obligation to subscribe.

For more on dividends:

Dan Caplinger updated this article, originally written by Tim Beyers and published Sept. 10, 2007. Dan owns shares of Berkshire Hathaway. UPS and Kraft Foods are Motley Fool Income Investor selections. Coca-Cola, Berkshire Hathaway, and American Express are Motley Fool Inside Value selections. Berkshire Hathaway is a Motley Fool Stock Advisor pick. The Fool owns shares of Berkshire Hathaway and American Express. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Kraft Foods Group, Inc. Stock Quote
Kraft Foods Group, Inc.
KRFT.DL
American Express Company Stock Quote
American Express Company
AXP
$140.26 (-1.94%) $-2.77
The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$58.60 (-1.11%) $0.66
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$40.41 (-2.67%) $-1.11
United Parcel Service, Inc. Stock Quote
United Parcel Service, Inc.
UPS
$164.33 (-2.10%) $-3.53
ConocoPhillips Stock Quote
ConocoPhillips
COP
$100.59 (-8.60%) $-9.47
Constellation Energy Group, Inc. Stock Quote
Constellation Energy Group, Inc.
CEG

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.