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sagitarius84 (< 20)

Buffett the dividend investor

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January 25, 2010 – Comments (3) | RELATED TICKERS: BRK-A , BRK-B , KO

Warren Buffett is the most successful investor of our time. The student of legendary value investor Ben Graham took on value investing to a whole new level by transforming the small textile mill Berkshire Hathaway (BRK.A) into a diversified conglomerate with interests in insurance, utilities, jewelry sales, newspaper publishing and many others.

Buffett is a closet dividend investor. One aspect of Buffett’s value strategy that many investors seem to miss is the fact that the Oracle of Omaha is a fan of companies which distribute a portion of their excess earnings back to Berkshire. This allows Buffett to re-invest the proceeds into new companies, which lets him further compound his invested capital.

Most of the companies which Berkshire has invested have been characterized by having wide moats, or durable competitive advantages. This is also the foundation behind some of the best dividend stocks out there. Only a company with a strong competitive advantage could afford to raise prices to consumers, which translates into higher earnings and ultimately into long-term dividend growth. Not having a large need of capital infusions is another important aspect of strong dividend growers.

Looking at the current portfolio holdings of Berkshire Hathaway, there companies. Of them seven are dividend aristocrats, one is an international dividend achiever and almost all of the rest pay a dividend except for six companies. Even some of Buffett’s core holdings such as GEICO and General RE, which he has acquired, were members of the elite dividend achievers index.

Berkshire Hathaway is expected to make about $1.3 billion in dividends from its publicly traded holdings. In addition to that Berkshire is expected to earn fat dividends from its investments in preferred stocks in General Electric (GE) and Goldman Sachs (GS) as well.

Name Ticker Shares Annual Dividend Notes

.

American Express Co AXP 151,670,700 $109,202,904

.

Bank of America BAC 5,000,000 $200,000

.

Becton Dickinson BDX 1,200,000 $1,776,000 Dividend Aristocrat

.

Burlington Northern BNI 76,777,029 $122,843,246

.

Carmax KMX 9,000,000 $0

.

Coca Cola KO 200,000,000 $328,000,000 Dividend Aristocrat

.

Comcast Corp CMCSA 12,000,000 $4,560,000

.

Comdisco Holdings Company CDCO 1,538,377 $0

.

Conoco Phillips COP 57,430,168 $114,860,336

.

Costco Wholesale COST 5,254,000 $3,782,880

.

Exxon Mobil XOM 1,276,290 $2,144,167 Dividend Aristocrat

.

Gannett GCI 3,447,600 $551,616

.

General Electric GE 7,777,900 $3,111,160

.

Glaxo Smith Kline GSK 1,510,500 $2,960,580

.

Home Depot HD 2,757,898 $2,482,108

.

Ingersoll Rand IR 7,782,600 $2,179,128

.

Iron Mountain IRM 3,372,200 $0

.

Johnson & Johnson JNJ 36,914,633 $72,352,681 Dividend Aristocrat

.

Kraft Foods KFT 138,272,500 $160,396,100

.

Lowes Companies LOW 6,500,000 $2,340,000 Dividend Aristocrat

.

M & T Bank MTB 6,715,060 $18,802,168

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Moody's Corporation MCO 31,902,602 $13,399,093

.

NRG Energy NRG 6,000,000 $0

.

Nalco Holding Company NLC 9,000,000 $1,260,000

.

Nestle NSRGY 3,400,000 $4,063,000 Int Dividend Achiever

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Nike NKE 7,641,000 $8,252,280

.

Procter & Gamble PG 96,316,010 $169,516,178 Dividend Aristocrat

.

Republic Services RSG 3,625,000 $2,755,000

.

Sanofi Aventis SNY 3,903,933 $5,543,585

.

Suntrust Banks STI 3,079,778 $123,191

.

Torchmark Corp TMK 2,823,879 $1,694,327

.

Travelers Cos TRV 27,336 $36,084

.

US Bancorp USB 69,039,426 $13,807,885

.

USG USG 17,072,192 $0

.

UPS UPS 1,429,200 $2,572,560

.

United Healthcare Group UNH 3,400,000 $102,000

.

Wal Mart Store WMT 37,836,642 $41,241,940 Dividend Aristocrat

.

Washington Post WPO 1,727,765 $14,858,779

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Wells Fargo WFC 313,355,657 $62,671,131

.

Wellpoint WLP 3,394,213 $0

.

Wesco Financial WSC 5,703,087 $9,010,877 Dividend Champion

.

Total Dividend Income: $1,303,452,985


A major tenet of Buffett’s investment philosophy is buying a holding through thick and thin forever. It is especially interesting to note how much income his investment in Coca Cola (KO) and the Washington Post (WPO) generate. Berkshire’s average cost basis in Coca Cola is $6.49/share. With an annual dividend of $1.64/share Buffett is generating an annual yield on cost of 25.3%. This means that every 4 years he gets paid exactly what he paid for the stock 20 years ago. Buffett’s basis in Washington Post is $6.15/share. With a current dividend of $8.60, Berkshire’s yield on cost is 139.80%.

Relevant Articles:

- Warren Buffett – The Ultimate Dividend Investor
- Coca Cola (KO) Dividend Stock Analysis
- Buffett Partnership Letters
- Myths about Warren Buffett

3 Comments – Post Your Own

#1) On January 25, 2010 at 9:58 AM, sagitarius84 (< 20) wrote:

Full Disclosure: Long KO, JNJ, MTB, PG, WMT

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#2) On January 25, 2010 at 10:59 AM, dudemonkey (40.73) wrote:

While I consider myself a value investor, I've found that the more I read about dividend investing the better I'm able to value businesses.  Good article.

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#3) On January 25, 2010 at 11:41 AM, sagitarius84 (< 20) wrote:

Buffett does enjoy receiving dividends for Berkshire and then allocating that capital somewhere else. His investment in See's Candies is a major example of that. Dudemonkey - thanks for the comment.

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