Warren Buffett is arguably the best investor ever; the Oracle of Omaha has built one of the biggest fortunes in the world by investing in high-quality companies with rock-solid fundamentals for the long term. While Berkshire Hathaway doesn't pay any dividends, that doesn't mean dividend investors can't profit from Buffett's wisdom when making investment decisions.
On the contrary, Buffett's stock portfolio includes many world-class companies with growing dividend distributions. In the consumer sector, names such as Coca-Cola (NYSE:KO), Procter & Gamble (NYSE:PG), and Wal-Mart (NYSE:WMT) could be particularly interesting alternatives for dividend investors hunting for opportunities among Warren Buffett stocks.
Always Coca-Cola stock
Buffett is all about competitive strengths, and Coca-Cola comes second to none in that department. Coca-Cola and Diet Coke are two leading brands in the industry, and the company owns a global portfolio of 17 brands generating more than $1 billion each in global revenues. Coca-Cola also benefits from a gigantic global distribution network and abundant financial resources to invest in areas such as marketing and product development.
The market is quite saturated in developed countries, and consumers are increasingly paying more attention to the calories and other health implications of the drinks they consume. For this reason, it's not easy for Coca-Cola to generate volume growth in big markets such as the United States.
On the other hand, the company owns 11 billion-dollar brands in the still beverages category, and sales in this segment are performing quite well, with a 5% increase in volume during the second quarter. Besides, emerging markets still offer plenty of room for growth, both in traditional soft drinks and healthier alternatives. Overall sales volume in China increased by an impressive 9% in the last quarter.
Coca-Cola has raised its dividend for 52 consecutive years, including a 9% increase for 2014. The payout ratio is in the area of 59% of earnings estimates for the current year, and the stock pays a 3% dividend yield.
Clean up with Procter & Gamble
Procter & Gamble has a truly extraordinary trajectory of dividend payments. The company has paid uninterrupted dividends since 1890, an amazing track record of 124 consecutive years of recurrent cash payments for shareholders. Dividends are growing, too, and the company has raised its distributions for 58 consecutive years.
A rock-solid trajectory of dividend payments isn't the only thing Procter and Gamble and Coca-Cola have in common. They both own a leading portfolio of brands in their respective industries, which should come as no surprise considering how much Buffett appreciates a powerful brand.
However, Procter & Gamble is choosing quality over quantity when it comes to its brands portfolio. The company will be selling between 90 and 100 underperforming brands, retaining its most promising and dynamic names. The company plans to maintain 70 and 80 core brands, which together account for approximately 90% of sales and 95% of profits.
According to CFO Jon Moeller:
We're going to create a faster growing, more profitable company that is far simpler to operate. We will be more agile and responsive, more flexible and faster. Less will be more.
This global juggernaut in several consumer household categories pays a 3.2% dividend yield, and the payout ratio is in the neighborhood of 58% of earnings estimates for the fiscal year ending in June 2015.
Wal-Mart: Size matters in discount retail
Like many other retailers, Wal-Mart has faced slowing growth lately. The online retail revolution is a material challenge for brick-and-mortar operators. In addition, Costco is clearly outperforming Wal-Mart and gaining market in discount retail share, thanks to its smart business model and remarkable customer loyalty.
On the other hand, Wal-Mart enjoys tremendous scale advantages, a crucial competitive factor in the industry. Making more than $475 billion in global sales annually, the company is the world's biggest retailer. This position allows Wal-Mart to negotiate aggressively low prices and convenient financial conditions with suppliers, which it then translates into competitive prices for consumers.
Management is relying on e-commerce sales and smaller-format stores to accelerate growth, and there are some reasons for optimism in these areas. Comparable sales in the neighborhood market division increased by an impressive 5% during the last quarter, while online sales surged 24% versus the same quarter in the prior year.
Wal-Mart has raised dividends for 41 years in a row, and the payout ratio is quite safe, in the area of 38% of earnings estimates for the current year. Wal-Mart stock yields 2.5% in dividends.
Coca-Cola, Procter & Gamble, and Wal-Mart don't only pay consistently growing dividends for shareholders, but they're also part of an exclusive group of high-quality businesses selected by Warren Buffett himself. That says a lot about these companies and their potential to outperform the market in the years ahead.
Andrés Cardenal owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, Costco Wholesale, and Procter & Gamble; owns shares of Berkshire Hathaway and Costco Wholesale; and has options on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.