According to Warren Buffett, “All it takes to invest is to pick good stocks at the right time and stay there as long as they remain good businesses.” Luckily for us ordinary investors, you don’t need Berkshire HathawayResources to separate good companies from companies that are best avoided. Just look for dividend payers that continue to increase their payouts.
Berkshire Hathaway doesn’t pay a dividend itself, but the vast majority of stocks it owns do. Buffett is such a fan of dividend-paying companies that the majority of Berkshire’s holdings are concentrated in a handful of dividend-paying stocks. You might be surprised to learn that at recent prices, just two stocks represent 57.7% of Berkshire’s stock portfolio.
Buffett’s bets big on Apple
Buffett has been at the helm of Berkshire since 1965, but one of his biggest investments of all time didn’t enter the stock portfolio until 2016. That’s the year Berkshire began building a huge participation in Apple (NASDAQ:AAPL)which quickly became the conglomerate’s largest holding company.
Apple’s stock price is up 627% since the end of the first quarter in which Berkshire revealed its stake in the company. Additionally, its quarterly dividend payout increased by approximately 68% over the same period.
Huge gains and subsequent purchases have raised Berkshire’s stake in Apple to a staggering $181 billion at recent prices, or about 48% of Berkshire’s stock portfolio. The stock offers an uninspiring 0.5% yield at recent prices, but Buffett has accumulated about 915 million shares, so the quarterly payouts are significant.
Berkshire’s Apple holdings will pay $220 million in dividends in February and likely more in the following quarter. The highly profitable company has generated nearly $100 billion in free movement of capital over the past 12 months and only needed 15% of that to meet its dividend commitment.
New investors who want to follow Buffett’s lead can expect earnings to grow and dividends to increase from Apple for at least another decade. iPhone sales aren’t growing very fast, but Apple has more than 2 billion active devices. Selling high-margin services to these users caused earnings per share to rise 13% in the fiscal fourth quarter ended September 30.
Bank of America is boring but reliable
Buffet owns more than a billion shares of Bank of America (NYSE:BAC), or BofA. At 9.3% of the stock portfolio, it is Berkshire’s second-largest holding.
For decades, Buffett has told anyone who will listen that he believes in the ability of the American economy to grow over time. He loves buying bank stocks after they’ve taken a beating, because he knows that these cyclical companies benefit from periods of economic growth that tend to last much longer than the recessions between them.
The interest BofA receives from loans grew much faster in 2023 than the interest it pays on its huge deposit base. The improvement in net interest margin helped earnings per share increase 11% year-over-year in the third quarter.
At recent prices, BofA stock offers a 2.8% dividend yield and a chance to earn a much higher return on your initial investment in the years to come. The bank maintained its dividend in 2020, but it is still up 60% over the past five years.
Despite all the rapid payout hikes in recent years, BofA has met its dividend obligation over the past 12 months with just 20.7% of the free cash flow generated by its lucrative banking operations. This means that there is still plenty of room to significantly increase its dividend in the coming years. Buying the stock now to hold it for the long term seems like a smart move.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Cory Renauer has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Apple and Bank of America. The Motley Fool has a disclosure policy.
57.7% of Warren Buffett’s $375 billion portfolio is invested in these 2 dividend-paying stocks was originally published by The Motley Fool
