Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

3 Dividend Stock Favorites of Warren Buffett

Thu, Mar 11, 12:12 PM ET, by Scott V. Nystrom

Risk-averse investors are increasingly turning to stocks that provide a reliable stream of income. Certificates of deposit (CDs) no longer pay high enough interest rates to generate meaningful income. After 2008, many investors no longer want to hold in non-dividend paying stocks for fear of losing principal. More than ever, investors are living by the old adage "the yield is your shield." Investing in stable, mature dividend paying stocks is one conservative approach to portfolio risk management and provides a decent income.

The most popular conservative investing name in the business is Warren Buffett. One way to benefit from Mr. Buffett's approach to investing is to invest in the company he runs, Berkshire Hathaway ((BRK).A) ((BRK).B). But Berkshire does not pay a dividend. So how can a self-directed investor benefit from Buffett's stock picking prowess and earn a reliable income?

In late February, Warren Buffett released Berkshire Hathaway's 2009 annual report and his annual letter to Berkshire shareholders. An approach used by many income investors is to identify the highest yielding dividend paying companies owned by Berkshire Hathaway and spend some time doing due diligence to identify top plays.

The following are three high paying and stable dividend paying stocks held by Berkshire Hathaway that are likely to increase in value over time.

Kraft Foods Inc.

Kraft Foods (KFT) has an above-average annualized dividend yield of 4.0 percent, and a forward price to earnings ratio of 14.1. It is one of the strongest brands in the business. Kraft Foods Inc., and subsidiaries manufacture and market packaged food products including snacks, beverages, confectionary, cheese and dairy products, desserts, frozen pizza, packaged dinners, and processed meats. The firm’s "brands" are common household goods including Oscar Mayer, Oreo, Maxwell House, and Nabisco.

For the quarter ended December 31, 2009, Kraft reported earnings of $710.0 million or 48 cents per share compared with $824.0 million or 55 cents per share for the prior quarter and $101.0 million or 7 cents per share for the same quarter one year ago.

Kraft Foods has a favorable value and growth profile. Kraft continues to expand its global distribution network with the recent acquisition of Cadbury illustrates.

During the last few years, Kraft has been undergoing substantial restructuring efforts to lower the company's cost structure with workforce reductions, consolidation of facilities, dumping less profitable brands, and adding fast growing and profitable goods.

Regardless of where the economy is headed, the company's brand recognition and expansive global distribution network can be expected to generate considerable cash flow into the future.

On a positive note, the Illinois-based company regained coverage by analysts at Credit Suisse with an "Outperform" rating. Credit Suisse also put a $35 price target on Kraft, which had closed at $29.38 on Wednesday, March 10. Sabrient Systems, an independent equity research firm, has a "Buy" rating on Kraft as of March 8, 2010.

The chart below shows solid dividend growth for Kraft Foods over the past 5 years.

Source: www.ycharts.com

The Travelers Companies, Inc

The Travelers Companies, Inc. (TRV) has a 2.5 percent annualized dividend yield and a forward price to earnings ratio of 9.1. Through subsidiaries, Travelers provides commercial, personal property, and casualty insurance products to businesses, government units, associations, and consumers in the United States.

For the quarter ended December 31, 2009, Travelers reported earnings of $1.3 billion or $2.36 per share solidly beating consensus expectations. The company earned $934 million or $1.65 per share for the third quarter of 2009 and $800 million or $1.35 per share for the fourth quarter of 2008. The 2009 earnings were $6.33 per share compared with $4.81 per share for 2008.

Travelers' has a favorable value and growth profile. Travelers has a history of repurchasing shares, most recently in the fourth quarter when it bought back $1.55 billion worth of common stock.

With legacy reserves in asbestos liabilities stable since 2005, the company has put behind it a major drag on the share price. Even better, the company avoided much of the investment leveraging excesses of its peers over the past decade. As a result, Travelers has opportunities to gain market share in underwriting from weaker competitors. Travelers enjoys return on equity higher than its cost of capital since merging with St. Paul Company. In addition, Travelers has a new direct-to-consumer initiative for improving growth in the future.

Sabrient Systems, an independent equity research firm, has a "Strong Buy" rating on The Travelers Company as of March 8, 2010. Travelers was trading at $52.89 a share at the close on Wednesday, March 10.

The chart below shows solid dividend growth for The Travelers Companies over the past 5 years.

Source: www.ycharts.com

ConocoPhillips

Another Buffett high yielder is the international integrated energy company ConocoPhillips (COP), which yields 3.9 percent and has a forward PE of 8.8. The company headquartered in Houston, Texas has been around since 1917, and has raised its dividend every year since the year 2001. Its payout ratio is less than 25 percent.

ConocoPhillips is engaged in the exploration and production of oil and natural gas, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses. The company has six operating units including exploration and production representing 69 percent of earnings, refining and marketing (15%), LUKOIL Investment (11%), midstream (3%), chemicals (1%) and emerging businesses (1%).

For the quarter ended December 31, 2009, ConocoPhillips reported earnings of $1.2 billion or 81 cents per share compared with $1.5 billion or $1.00 per share for the third quarter of 2009. The last twelve months earnings were $3.24 per share compared with $-11.16 per share in 2008.
ConocoPhillips’s strong value profile makes it one of the better dividend paying value stocks available in the market. The company produces a higher proportion of natural gas than competitors and should benefit from the environmental push to shift energy consumption away from coal and oil towards natural gas. Agreements with national oil companies should continue to provide opportunities for revenue growth amid a long-term market that is likely to sustain historically high prices for oil and gas. ConocoPhillips also has significant pipeline operations and other distribution assets that offer steady revenue.

One negative for Warren Buffett fans is Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) has reduced its stake in ConocoPhillips by 34 percent, down to still significant 37.7 million shares.

A risk for ConocoPhillips is the White House budget to Congress for FY 2011 repealed several key tax incentives for the oil industry that has a disproportionate impact on independent, integrated oil and gas producers with large domestic operations. The final decisions have yet to be made by the Congress on the proposal. Investors may want to keep an eye on the proposal as it winds its way through Capitol Hill.

Sabrient Systems, an independent equity research firm, has a "Strong Buy" rating on ConocoPhillips as of March 8, 2010. ConocoPhillips shares were trading at $51.47 per share on Wednesday, March 10.

Though the chart below doesn't show it, ConocoPhillips announced in October 2009 a 6.4 percent increase in the company's quarterly common stock cash dividend—a bullish signal. The new quarterly dividend on the company's common stock went to 50 cents per share, up from 47 cents per share previously.

The chart below shows solid dividend growth for ConocoPhillips over the past 5 years.

Source: www.ycharts.com

Conclusion

As an equally weighted investment bundle, these three companies pay an average annual yield of 3.4 percent and have an average forward price to earnings ratio of 10.7.

The Oracle of Omaha favors high quality dividend paying stocks with a competitive advantage in a stable industry. Companies with a record of increasing their dividends over long periods of time generally qualify as classic value stocks. The three companies listed above meet or exceed these standards and that is why they are in the Berkshire Hathaway portfolio of companies.

Disclosure: No Positions


SDI Glossary: "CD" Definition
SDI Glossary: "price" Definition
SDI Glossary: "FY" Definition
SDI Glossary: "NYSE" Definition
SDI Glossary: "Risk" Definition
SDI Glossary: "Risk-averse" Definition
This Article's Word Cloud:   Berkshire   Buffett   Companies   ConocoPhillips   Foods   Hathaway   Kraft   March   Travelers   below   billion   cents   chart   common   companies   company   compared   dividend   earnings   equity   firm   forward   from   growth   high   income   independent   investors   market   million   over   past   paying   percent   price   products   quarter   rating   ratio   share   since   stable   stock   stocks   than   that   value   with   years   yield

| More

A Pharmaceutical Stock to Get Jazzed About
Sun, Apr 6, 6:24 PM ET, by eDividendStocks.com

Given the companys terrific growth prospects and attractive valuation, Jazz Pharmaceuticals looks like a strong ...

A Pharmaceutical Stock to Get Jazzed About
Tue, Oct 8, 6:15 PM ET, by eDividendStocks.com

Given the companys terrific growth prospects and attractive valuation, Jazz Pharmaceuticals looks like a strong ...

A Pharmaceutical Stock to Get Jazzed About
Thu, Apr 11, 5:54 PM ET, by eDividendStocks.com

Given the companys terrific growth prospects and attractive valuation, Jazz Pharmaceuticals looks like a strong ...

Goldman Sachs Increases Dividend By 31 Percent
Sun, Oct 14, 9:45 AM ET, by eDividendStocks.com

Goldman Sachs announced today that the company will increase their quarterly dividend by 31 percent ...

Goldman Sachs Increases Dividend By 31 Percent
Tue, Apr 17, 9:36 AM ET, by eDividendStocks.com

Goldman Sachs announced today that the company will increase their quarterly dividend by 31 percent ...

10 Reasons to Buy Lululemon
Tue, Apr 17, 9:15 AM ET, by eDividendStocks.com

Jim Cramer is excited about the markets pullback since it allows investors to buy terrific ...

Travelzoo Could Be Facebook’s Next $1 Billion Acquisition
Thu, Apr 12, 5:15 PM ET, by eDividendStocks.com

If Facebook was willing to spend $1 billion to acquire Instagram, Travelzoo would look like ...

Cramer Recommends 2 Tech Stocks
Thu, Apr 5, 6:15 PM ET, by eDividendStocks.com

Mad Money host Jim Cramer recently recommended Microsoft and Intel as two examples of old ...

16th Consecutive Annual TJX Dividend Increase
Tue, Apr 3, 5:55 PM ET, by eDividendStocks.com

The discount retailer has been a terrific holding for investors this year. Already the stock ...

It Isn’t Easy Being Green Dot
Mon, Apr 2, 5:15 PM ET, by eDividendStocks.com

Given the companys rough track record of late and the potential for higher commission payments ...

Apple Dividend Is Finally Here
Mon, Mar 19, 10:35 AM ET, by eDividendStocks.com

Apple announced today that the worlds largest company will initiate a quarterly dividend of $2.65 ...

Walmart Increases Dividend for 39th Consecutive Year
Thu, Mar 1, 12:44 PM ET, by eDividendStocks.com

Since last years 21 percent dividend increase, WMT shares have gained 14 percent and have ...

5 Companies That Have Been Valued At Over $500 Billion
Wed, Feb 29, 9:44 AM ET, by eDividendStocks.com

Only five companies have ever reached the point of greatness where investors valued their company ...

St. Jude Medical Declares 10 Percent Dividend Increase
Mon, Feb 27, 10:39 AM ET, by eDividendStocks.com

St. Jude Medical announced today that the company will offer their shareholders a 10 percent ...

Mosaic Boosts Dividend Payout By 150 Percent
Mon, Feb 27, 9:54 AM ET, by eDividendStocks.com

Mosaic announced today that the company will boost their dividend payout by 150 percent to ...

Obama Proposes Dividend Tax Hike
Wed, Feb 22, 5:14 PM ET, by eDividendStocks.com

President Barack Obamas 2013 budget includes a proposed dividend tax hike that could end up ...

France Telecom to Cut Its High Yielding Dividend
Wed, Feb 22, 11:14 AM ET, by eDividendStocks.com

... read more ». ...

CEO Tim Cook Hints At Apple Dividend
Wed, Feb 15, 9:54 AM ET, by eDividendStocks.com

Investors received a positive signal from CEO Tim Cook yesterday that an Apple dividend could ...

Time Warner Raises Dividend Following Strong Fourth Quarter
Wed, Feb 8, 9:34 AM ET, by eDividendStocks.com

Time Warner (TWX: 38.10 0.00%) announced this morning that the media company will raise their ...

Rayonier Announces Dividend Increase and Stock Split
Thu, Sep 1, 3:51 PM ET, by eDividendStocks.com

Rayonier announced today that the company will increase their quarterly dividend by 11 percent and ...

Rayonier Announces Dividend Increase and Stock Split
Mon, Jul 25, 5:15 PM ET, by eDividendStocks.com

Rayonier announced today that the company will increase their quarterly dividend by 11 percent and ...

Altera Boosts Dividend
Wed, Jul 20, 9:45 AM ET, by eDividendStocks.com

Altera announced yesterday that the company will boost their quarterly dividend by 33 percent to ...

Gannett Doubles Dividend as Profits Plunge
Mon, Jul 18, 10:25 AM ET, by eDividendStocks.com

Gannett Co. announced today that the company will double their quarterly dividend to $.08 per ...

Walgreens Announces Biggest Dividend Increase Ever
Wed, Jul 13, 2:15 PM ET, by eDividendStocks.com

Walgreens today announced their biggest dividend increase ever and also authorized a $2 billion stock ...

Cummins Dividend Yield Climbs Higher
Tue, Jul 12, 3:35 PM ET, by eDividendStocks.com

Cummins announced today that the company will increase their quarterly dividend by 52 percent to ...

PACCAR Gives Investors a 50% Dividend Increase
Mon, Jul 11, 2:25 PM ET, by eDividendStocks.com

PACCAR announced today that the company will give their investors a 50 percent quarterly dividend ...

5 Manufacturing Stocks Experiencing Rising Demand
Thu, Jul 7, 3:35 PM ET, by eDividendStocks.com

Mad Money host Jim Cramer recently identified 5 manufacturing stocks that are experiencing rising demand ...

Dividend Payments Improved Again In the Second Quarter
Wed, Jul 6, 1:55 PM ET, by eDividendStocks.com

Dividend investors received good news today as Standard & Poors released a report showing that ...

General Mills Raises Dividend Again
Wed, Jun 29, 10:36 AM ET, by eDividendStocks.com

General Mills (GIS: 37.41 +0.54%) announced yesterday that the company will raise their quarterly dividend ...

Is Microsoft Cool Again?
Tue, Jun 28, 5:25 PM ET, by eDividendStocks.com

Microsoft captured the financial headlines today. While thats not a big surprise, the fact that ...

Investors Are Turning To Healthcare Stocks for Higher Yields
Mon, Jun 27, 5:45 PM ET, by eDividendStocks.com

Its no secret that interest rates continue to remain very low. The rate on the ...

Initiating a Dividend Won’t Save Research in Motion
Fri, Jun 24, 10:45 AM ET, by eDividendStocks.com

Some stocks become great values when their stock price declines. Others just become value traps. ...

Medtronic Raises Dividend for 34th Consecutive Year
Thu, Jun 23, 10:55 PM ET, by eDividendStocks.com

Medtronic (MDT: 38.34 -0.52%) announced today that the company will raise their quarterly dividend by ...

Duke Energy Boosts High Dividend Yield
Tue, Jun 21, 4:35 PM ET, by eDividendStocks.com

Duke Energy (DUK: 18.80 -0.16%) announced today that the company will increase their quarterly dividend ...

Best Buy Authorizes $5 Billion Stock Repurchase and Dividend Increase
Tue, Jun 21, 4:25 PM ET, by eDividendStocks.com

Best Buy (BBY: 32.38 +2.66%) announced today that the company had authorized a $5 billion ...

PetSmart Announces Dividend Increase and Stock Buyback
Mon, Jun 20, 4:15 PM ET, by eDividendStocks.com

PetSmart (PETM: 44.34 +2.19%) recently announced that the company will increase their quarterly dividend by ...

Are We Facing Financial Armageddon If Greece Collapses?
Sat, Jun 18, 9:15 AM ET, by eDividendStocks.com

The headlines have been getting increasingly negative. The stock market has been in freefall. ...

6 Optimistic CEO’s of Blue Chip Stocks
Fri, Jun 17, 4:16 PM ET, by eDividendStocks.com

Since the beginning of May, the Dow Jones index has dropped nearly 7 percent and ...

J.C. Penney’s New $1 Billion CEO
Thu, Jun 16, 3:55 PM ET, by eDividendStocks.com

While the financial crisis in Greece and falling stock prices are capturing most of the ...

Having No Dividend Is Hurting Bank of America
Fri, Jun 10, 2:45 PM ET, by eDividendStocks.com

Poor Bank of America is watching its stock price drop fast. Today BAC hit a ...

Vail Resorts Announce First Dividend Ever
Thu, Jun 9, 4:35 PM ET, by eDividendStocks.com

Vail Resorts (MTN: 45.54 +4.91%) announced today that the company will initiate a quarterly dividend ...

Caterpillar Raises Dividend for 18th Consecutive Year
Wed, Jun 8, 4:15 PM ET, by eDividendStocks.com

Caterpillar (CAT: 98.04 -1.84%) today announced a quarterly dividend increase of 5% to $.46 per ...

Target Offers Dividend Increase as Stock Hits 52-Week Low
Wed, Jun 8, 3:25 PM ET, by eDividendStocks.com

Target Corporation (TGT: 46.83 -0.49%) announced a 20% dividend increase this quarter to $.30 per ...

FedEx Gives Investors a Penny Dividend Increase
Tue, Jun 7, 4:35 PM ET, by eDividendStocks.com

FedEx Corporation (FDX: 86.76 -1.13%) announced today that the company will increase their quarterly dividend ...

Walmart Unveils Mega Stock Repurchase Program
Mon, Jun 6, 4:15 PM ET, by eDividendStocks.com

Wal-Mart Stores (WMT: 53.76 +0.19%) announced on Friday that their Board of Directors has approved ...

Rockwell Automation Gives 21% Dividend Increase
Fri, Jun 3, 4:15 PM ET, by eDividendStocks.com

Rockwell Automation (ROK: 81.38 -2.01%) announced today that the company will give their shareholders a ...

Is Google a Value Stock?
Thu, Jun 2, 3:35 PM ET, by eDividendStocks.com

Could a $500 per share stock really be considered a value stock? On the surface ...

5 Reasons to Buy This Emerging Markets Dividend Stock
Wed, Jun 1, 5:35 PM ET, by eDividendStocks.com

For investors looking for an attractive emerging markets dividend stock Diageo may just fit the ...

4 Current Bull Market Themes
Tue, May 31, 2:45 PM ET, by eDividendStocks.com

Its important to take a step back every now and then and recognize the current ...

Heinz Offers a Dividend Increase Following Strong Earnings Results
Thu, May 26, 4:45 PM ET, by eDividendStocks.com

The H.J. Heinz Company (or Heinz) announced today that the company will offer a 7% ...

Related videos | all videos »
  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

3 Dividend Stock Favorites of Warren Buffett | Self Directed Investor | Copyright © 2008 - 2014, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.