Warren Buffett earns $4.65 billion in annual dividend income from these 6 stocks.

berkshire hathaway (BRK.A 0.02%) (BRK.B 0.08%) CEO Warren Buffett has a way of capturing the attention of Wall Street and investors, and you don’t need to look any further than his investment track record to understand why. The Oracle of Omaha, which has become known as the Oracle of Omaha, has overseen a total increase of approximately 4,500,000% in its Class A stock (BRK.A) since he became CEO in the mid-1960s. .

Mr. Buffett’s “recipe” for success is well documented. This includes buying shares in long-term profitable companies and focusing on businesses with sustainable competitive advantages and reliable management teams.

But one “ingredient” to Berkshire Hathaway’s success that doesn’t get enough credit is Buffett’s love of dividend stocks. Companies that pay regular dividends to shareholders tend to be consistently profitable, have a proven track record, and can offer transparent long-term growth prospects.

Berkshire Hathaway CEO Warren Buffett. Image source: Motley Fool.

Most importantly, income stocks have a long track record of outperformance. A recent study conducted by The Hartford Funds in conjunction with Ned Davis Research found that dividend stocks have returned 9.18% annually over the past half-century (1973-2022). This was more than double the annualized return for nonpayers (3.95%) over the same period.

In 2024, Buffett’s company will collect about $6 billion in dividend income (including preferred dividends). Interestingly, of this total, his $4.65 billion will come from just his six core holdings.

1. Bank of America: Annual dividend income of $991,537,926

Of the approximately 50 stocks currently held in Berkshire Hathaway’s portfolio (not all of which pay dividends), american bank (BAC -1.06%) When it comes to dividend income, it ranks at the top for Warren Buffett and his team. Buffett’s company, which owns more than 1.03 billion BofA shares, would generate about $992 million in annual income.

Oracle of Omaha and his team value cyclical businesses very highly, and bank stocks certainly fit that mold. Although recessions are a perfectly normal part of the economic cycle, they are relatively short-lived. Rather than trying to gauge when a recession will occur, Buffett has filled his portfolio with proven winners like Bank of America that he knows will benefit from long periods of expansion. is.

What has particularly helped Bank of America lately is the Federal Reserve’s hawkish monetary policy. The Fed has raised the federal funds rate by 525 basis points starting in March 2022. For BofA, the most rate-sensitive of the U.S. money center banks, the steepest rate hike cycle in 40 years is music to music. Rising interest rates increased net interest income by billions of dollars each quarter.

2. Apple: Annual dividend income of $878,937,967

Perhaps it’s no surprise that Berkshire Hathaway was the biggest holding by a wide margin. apple (AAPL 0.18%) As of Jan. 9, it accounted for 47% of Berkshire’s $361 billion portfolio and is one of the company’s top dividend stocks. Apple’s $0.96 per share dividend translates into nearly $879 million in annual revenue for Buffett’s company.

At Berkshire’s 2023 annual shareholder meeting, Buffett called Apple “a better company than any other company we own.” This statement reflects Apple’s very strong branding, loyal customer base, and ability to innovate above its competitors. More than 15 years after its release, the iPhone still commands more than half of the US smartphone market share.

But Apple’s innovation goes far beyond the physical products that made it famous: the iPhone, Mac, and iPad. CEO Tim Cook is overseeing Apple’s continued evolution into a platform company. A focus on subscription services will keep consumers within Apple’s ecosystem of products and services, while also helping to smooth out the revenue volatility that often occurs during major iPhone replacement cycles.

Rising spot prices for crude oil are good news for Occidental Petroleum. WTI crude oil spot price data by YCharts.

3. Occidental Petroleum: Annual dividend income of $854,675,379 (including preferred stock dividends)

The energy sector is often known for offering solid dividends. Mr. Buffett is overseeing the collection of 243.7 million shares for annual income of approximately $175.5 million. western oil (Oxy 1.63%) In addition to its common stock holdings, it owns $679.2 million of the $8.49 billion in Occidental preferred stock, which has an annualized yield of 8%.

The roughly $14 billion that Warren Buffett and his team currently have invested in Occidental is an obvious bet that the spot price of oil will continue to rise or rise. Despite being an integrated oil and gas company, Occidental also operates chemical plants in addition to drilling, and derives most of its revenue from drilling. If the spot price of crude oil rises, huge profits will be made.

On the other hand, Occidental Petroleum’s balance sheet is a bit unusual compared to most of Buffett’s investments. This means Oracle of Omaha often avoids companies with large amounts of debt. Occidental still had about $18.6 billion in net debt as of Sept. 30, even though it has cut its net debt by nearly half since completing its acquisition of Anadarko. To further improve its financial position, it is necessary to maintain the rise in crude oil spot prices. Flexibility.

Image source: Coca-Cola.

4. Coca-Cola: $736 million in annual dividend income

Another fundamental dividend stock in Warren Buffett’s portfolio at Berkshire Hathaway is the beverage giant. coca cola (KO 0.97%). Based on Berkshire’s Coca-Cola’s ultra-low cost standard of $3.2475 per share, Oracle of Omaha earns an annual yield of 57% relative to cost (Coca-Cola’s base annual dividend is $1.84 per share). dollar).

The most valuable thing Coca-Cola brings to investors is predictability. We continue to operate in all countries except Cuba, North Korea, and Russia. This allows for predictable operating cash flows in developed markets and allows companies to drive stable internal growth from emerging markets. Overall, Coca-Cola has more than 20 of his brands that generate at least $1 billion in annual sales.

Branding and marketing are two clear keys to success. According to Kantar’s annual Brand Footprint report, Coke products have been chosen by consumers more than any other brand on the planet for 10 consecutive years (as of 2022). This, in addition to having a famous brand, is also a reflection of the company’s highest level of marketing. Coca-Cola leverages digital channels and artificial intelligence (AI) to target advertising to younger audiences, while relying on well-known brand ambassadors to stay connected with mature consumers.

5. Chevron: Annual dividend income of $665,899,666

Did we mention that energy stocks are known for their potentially high dividends? chevron (CVX 1.37%) has increased its annual base dividend for the 36th consecutive year, and its board of directors has approved a stock repurchase program of up to $75 billion. Berkshire’s more than 110 million Chevron shares provide Buffett’s company with about $666 million in annual income.

Although the investment thesis with Chevron Corp. mirrors Occidental Petroleum to some extent, there are two distinct differences between these integrated energy companies. First, Chevron derives a significant portion of its revenue from downstream operations, including chemical plants and refineries. Less reliance on drilling for revenue means Chevron is better hedged than Occidental if spot oil prices decline.

Another major difference between these two consolidators is their balance sheets. Occidental is highly leveraged, while Chevron’s net debt ratio was just 8.1% as of Sept. 30. An argument can be made that Chevron has the most financially flexible balance sheet of the world’s major energy companies.

6. Kraft Heinz: Annual dividend income of $521,015,709

The final Buffett stock that provides Berkshire Hathaway with more than $500 million in annual dividend income is a packaged foods and condiments company. Kraft Heinz (KHC 0.27%). Despite cutting its quarterly dividend by 36% in 2019, Kraft Heinz still contributes about $521 million annually to Oracle of Omaha.

The advantage of consumer staples stocks like Kraft Heinz is that they provide basic necessities. Consumers may cut back on discretionary spending during recessions, but that doesn’t mean people can’t survive without food. In addition, Kraft Heinz’s selection of well-known brands provides the company with outstanding pricing power.

However, after historically high inflation, consumers are becoming more cost-conscious. Kraft Heinz has reported volume and mix declines in multiple quarters, suggesting consumers are trading up to cheaper store-brand products as prices rise. Rekindling consumer interest in its brands could be difficult, considering the company has a lot of debt on its balance sheet.