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Tue. Jun. 9, 2009

Warren Buffett’s Dividend Stocks *

Some of my fellow dividend investors have accused Warren Buffett of being a closet dividend investor. I won’t quite go that far, but there is significant common ground between dividend and value investors. With that said, let’s take a close look at Mr. Buffett’s most recent 13-F filing with the Securities and Exchange Commission.

Comparing Berkshire Hathaway’s (BRK.A) December 31, 2008 13-F with its March 31, 2009 13-F, I made the following observations for Q1/2009:

  • BRK didn’t add any new positions to its portfolio
  • BRK didn’t fully liquidate any positions in its portfolio
  • BRK added shares in seven stocks: BNSF Railway (BNI), Union Pacific (UNP), Wells Fargo (WFC), U.S. Bancorp (USB), Johnson & Johnson (JNJ), and Nalco Holding Company (NLC)
  • BRK reduced shares in four stocks: CarMax (KMX), ConocoPhillips (COP), Costco Wholesale Corporation (COST) and Constellation Energy Group, Inc. (CEG)

Of the stocks held in BRK’s 13-F portfolio, the following ones are either held in my income portfolio or are on my watch list of dividend stocks:

Coca Cola (KO) – Yield 3.34% – Analysis
The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world.

Johnson & Johnson (JNJ) – Yield 3.55% – Analysis
Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field.

Kraft Foods (KFT) – Yield 4.44% – Analysis
Kraft is engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products.

Lowes Companies (LOW) – Yield 1.89% – Analysis
Lowe’s Companies, Inc. is a home improvement retailer.

M&T Bank (MTB) – Yield 5.57%
M&T Bank Corporation is a bank holding company. As of December 31, 2008, the Company had two wholly owned bank subsidiaries.

Procter & Gamble Co. (PG) – Yield 3.39% – Analysis
The Procter & Gamble Company is focused on providing branded consumer goods.

Wal-Mart Stores, Inc.  (WMT) – Yield 2.19% – Analysis
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide.

In addition, Buffett continues to hold a position in several stocks that I sold over the last twelve months for either cutting or failing to raise their dividend. Those are:

Bank of America Corporation (BAC) – Yield 0.35%
Bank of America Corporation (Bank of America) is a bank holding company and a financial holding company.

General Electric (GE) – Yield 9.20%
General Electric Company is a diversified technology, media and financial services company.

The Home Depot, Inc. (HD) – Yield 3.89%
The Home Depot, Inc.is a home improvement retailer selling an assortment of building materials, home improvement and lawn and garden products, and provide a number of services.

SunTrust Banks, Inc. (STI) – Yield 3.04%
SunTrust Banks, Inc. is a diversified financial services holding company whose businesses provide a range of financial services to consumer and corporate clients.

U.S. Bancorp (USB) – Yield 1.04%
U.S. Bancorp operates as a financial holding company and a bank holding company. U.S. Bancorp provides a range of financial services, including lending and depository services, cash management, foreign exchange, and trust and investment management services.

It is not surprising that the most famous value investor holds several dividend stocks. Historically, stocks that pay dividends have out-performed those that don’t. When you buy dividend stocks at a discount, it’s like turbo-charging your return!

Full Disclosure: Long in JNJ, KO, MTB, PG, WMT . See a list of all my income holdings here.


7 Responses to “Warren Buffett’s Dividend Stocks *”

  1. Beekums says:

    The dividends may have little bearing on Warren Buffet owning those dividend paying stocks.

    The double taxation on dividends would imply that most non-REIT companies are wasting money by paying dividends since more of it is being given to the government. However, once a company reaches a certain size and it’s market is saturated, it can no longer provide a good return by spending it’s capital. At this point the company is better serving it’s investors by paying a dividend despite the double taxation. I don’t think dividend paying stocks always outperform non-dividend paying stocks, it’s more likely that most companies don’t realize that they’ve reached a point of diminishing returns on the capital they deploy and that it’s time for them to start paying dividends.

    Berkshire Hathaway has so much capital to deploy that it’s not worth the effort to find smaller companies to buy. This leaves Buffet with a pool of larger companies who are most likely at the point where growth is limited and paying dividends would provide the best return.

  2. Brendan says:

    Actually, even his 100% owned companies are dividend based stocks.
    I am sure that Dairy Queen, See’s, and Geico keep whatever cash they need to sustain/grow the business. All the left over cash, a dividend if you will, is turned over to Warren for redeployment.

  3. Beekums says:

    Money retrieved from his 100% owned companies isn’t technically a dividend, at least as far as the IRS is concerned. Correct me if I’m wrong, but the money produced by these companies gets taxed once when Berkshire Hathaway gets it. A dividend payed by a public company incurs a tax on the company and a tax on the shareholder that receives the dividend.

  4. Beekums: Your understanding is correct.

    Best Wishes,
    D4L

  5. Brendan says:

    I think maybe I was not understood?
    The surplus cash was called “a dividend if you will”. I did not mean a dividend in the legal sense.
    When Berkshire acquires these companies 100% they are no longer “on the market”, thus Warren does not intend to sell them for a profit.
    why does he own them? For the cash he can extract from them.
    If DairyQueen was a public company it could either pay a dividend, or retain cash for growth.
    Since Warren owns DairyQueen, he can obviously deploy capital better than most people.
    Call it what you want, “cash from investment operations”, or whatever.
    DQ doesn’t just leave their extra cash in a PC Financial high interest savings account. It is turned over to the mothership.
    I would maybe classify it as a dividend, in spirit, not in law?

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