3 Stocks With High Dividend Yields That Warren Buffett Likes

Susan Dziubinski: I’m Susan Dziubinski with Morningstar. Warren Buffett’s Berkshire Hathaway BRK.A BRK.B doesn’t intentionally buy dividend-paying stocks, but the firm favors financially strong companies with significant competitive advantages run by managers who thoughtfully allocate capital. And as a result of that strategy, Berkshire Hathaway naturally owns many dividend-paying stocks.

Today we’re looking at three stocks in Berkshire Hathaway’s portfolio with trailing yields twice that of the market as of the end of April. Not all of these stocks are undervalued according to Morningstar’s metrics today, but they make fine watchlist candidates for dividend-stock investors.

3 Stocks With High Dividend Yields That Warren Buffett Likes

1. Coca-Cola KO
2. Chevron CVX
3. Citigroup C

The first stock with a high dividend yield that Warren Buffett likes is Coca-Cola. Coke is a classic Warren Buffett company. It has a wide economic moat thanks to its strong brand and significant cost advantages. Management has been adept at allocating capital, with a history of smart acquisitions and equally smart spending to maintain growth; the team also consistently returns cash to shareholders through cash dividends and stock buybacks. We expect the dividend payment to grow in line with earnings over the next five years at a high-single-digit rate. We think Coke’s stock is worth $60.

The second high-dividend stock in Berkshire Hathaway’s portfolio that we’ll look at today is Chevron. Morningstar assigns the oil giant a narrow economic moat rating because we expect the firm to be able to deliver excess returns on invested capital over the next decade through a combination of an improved cost structure and the addition of higher-return production volumes. Here, too, management has done an exceptional job of allocating capital, and we think there’s room to grow the dividend. We think Chevron stock is worth $176 per share.

The final high-dividend stock that Warren Buffett’s Berkshire Hathaway likes is Citigroup. CIti is in the middle of a strategic repositioning, and Morningstar doesn’t think the bank has an economic moat at this point. But first-quarter results came in better than expected as management’s efforts to transform its business are beginning to show progress. We expect progress to continue as management focuses on expenses. We think Citi’s stock is worth $68.

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Morningstar director Allen Good and analysts Suryansh Sharma and Dan Su provided the research behind this segment.

Watch 3 Good Stocks to Buy With Your Tax Refund in 2024 (or With Any Extra Money) for more from Susan Dziubinski.