Warren Buffett’s Berkshire Hathaway famously hasn’t paid dividends to its investors since 1967 (two years after Buffett took over the company). Fortunately for Berkshire Hathaway’s continued success, the company receives billions of dollars in dividends from its own investment portfolio.
Between this July and July 2023, for instance, Berkshire Hathaway should reap a $6 billion dividend payout from its combined investments. The following three stocks alone contribute about $1.5 billion to that total — offering a prime example of how investing in stable, time-tested businesses can give investors a sturdy foundation in a wildly fluctuating economy.
1. Chevron (CVX)
Chevron is one of the world’s most prominent energy companies. Like most gas companies this year, it turned a record-breaking profit when gas prices rocketed in the spring and summer.
Warren Buffett bet on Chevron’s success in 2022’s first quarter, increasing Berkshire Hathaway’s Chevron holdings by 2.4 million shares. Per Berkshire’s most recent financial reports, it now owns 161.4 million Chevron shares, which represents an investment of over $25 billion and an 8.4% stake in the company. At this point, Berkshire Hathaway is Chevron’s second-largest stakeholder.
Annually, Chevron pays dividends of $5.68 per share, so Berkshire Hathaway is poised to rake in $929 million in dividends just from Chevron. And if oil and gas trends hold out, that amount will only grow: Chevron has increased annual shareholder dividends for 33 years in a row. The current dividend yield is about 3.5%.
Chevron isn’t the only energy company Berkshire Hathaway has increased its investments in this year. In August, for instance, the Federal Energy Regulatory Commission approved Berkshire Hathaway’s request to buy up to 50% of Occidental Petroleum.
As for why Buffett is choosing now to go all in on non-renewable energy companies, just take a look at your energy bill. Presumably (though we can’t say for sure), Buffett is betting on gas companies continuing to see incredible revenue numbers for the next few quarters or even years of continued global uncertainty.
2. Kraft Heinz (KHC)
Kraft Heinz is a global food company — the third-largest in the U.S. and the fifth-largest in the world — that owns brands like Ore-Ida, Capri Sun, Lunchables, and other grocery store staples. Kraft and Heinz merged in 2015 in a deal managed largely by Berkshire Hathaway.
The road to Kraft Heinz’s success has been pretty rocky. (Buffett believes his company paid too much for Kraft in particular). But according to Berkshire Hathaway’s most recent 13F filing, released in mid-August 2022, the company currently has about a $12 billion stake in Kraft Heinz. With 325.6 million shares, Berkshire Hathaway owns more than 26% of Kraft Heinz.
Since Kraft Heinz pays annual dividends of $1.60 a share, Berkshire Hathaway is expecting around $521 million in dividends this year. Incidentally, that’s exactly how much Berkshire Hathaway received from Kraft Heinz in 2019, 2020, and 2021 — so even if the company acquired Kraft at too high a price, the steady dividends help make up the difference. The current dividend yield is about 4.3%.
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3. Bank of New York Mellon (BK)
The Bank of New York Mellon Corporation, a.k.a. BNY Mellon, is an investment banking holding services and asset management company based in New York. The current company is the result of a merger between two of the country’s oldest, most venerated financial institutions: the Mellon Financial Corporation (founded 1869) and the Bank of New York (founded 1784).
The two institutions merged in 2007, and a decade and a half later, it’s clear the merger paid off. As of 2022, BNY Mellon managed $2.2 trillion, making it one of the biggest asset managers worldwide.
With a 9.2% stake in the company, Berkshire Hathaway is one of BNY Mellon’s largest shareholders. According to its 13F filing, Berkshire Hathaway holds 74.3 million shares, valued at over $3 billion. And thanks to BNY Mellon’s annual dividend of $1.48 per share, Berkshire Hathaway is set to receive $110 million over the next year. The current dividend yield is about 3.3%.
Prior to the COVID-19 pandemic, Berkshire Hathaway owned stakes in several major banks. But the company has since dropped multiple financial institutions from its investment profile, most notably Wells Fargo, which Berkshire Hathaway has had a stake in for three decades. The fact that Buffett continues to invest in BNY Mellon is a definite testament to the institution’s stability and solid dividends.
When times are tough (and today’s times certainly qualify), it pays to have a reliable source of cash flow — which is exactly what Buffett has done with these three stocks. And sure, most of us don’t have the massive cash reserves or diverse investment portfolio of Berkshire Hathaway. Still, it’s a smart financial move to follow Buffett’s lead by investing in a handful of steady, stable, dividend-paying companies. As always, consider your own investment goals and risk tolerance when making investment decisions.
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