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Buffett’s Choice Of Dividend Stocks

March 12, 2015 | About:

Dividend stocks are one of the best choices when it comes to providing a good return for investors. There are many dividend stocks in the market today; it is all about making the right choices and knowing when to invest in these stocks. One of the greatest investing legends of all times, Warren Buffett, founder and chairman of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), prefers only high dividend stocks when it comes to putting his stakes in. Though his holding company, per se, does not pay dividends, he has an interesting mix of stocks under his control from the dividend-paying category. The following are some of the best dividend stocks as per Buffett himself. He has picked these stocks based on their current dividend yields, cash-flow generating capacity and potential to grow in the future.

Focusing on core operations

Buffett believes that General Electric (NYSE:GE) is a company with great promise for the future. The current dividend yield is 3.6%, and the pay-out ratio is 52.9%, which is enough proof to indicate that the company would increase its dividends to a great extent in the future. Ever since the great recession of 2008, GE has been focusing on the areas that it is best at – manufacturing jet engines, turbines, huge machines to conduct MRIs, vehicles used for carrying locomotives and all other kinds of industrial machinery. The revenues from this segment increased by 9% during the fourth quarter of 2014 and the earnings per share are expected to touch $1.73 per share during this year. Currently, the slump in oil prices has contributed to reduced sales margins; however, the situation is expected to improve this year, as oil prices are expected to increase slightly. At around $25 per share, this stock is one of the best dividend stocks that you can invest in right now, as per Buffett. Share price trend and dividend history for the past few years are seen below:

Path of resurrection

One company that has managed to stay in the business and come out successful in spite of many challenges in the market is the automobile major, General Motors (NYSE:GM). The previous year of 2014 was one of the most challenging for the company as it recalled many of its brands from the market. This led to the fall of its brand image to a great extent. However, General Motors got into action and came with some of the best cars in the market, which led to Warren Buffett increasing his stake by 3% in the company’s stocks during Q4 2014. Buffett believes that GM is a stock to watch out for, as its revenues are expected to climb up at least 2.7% during 2015, thanks to some great models like Chevrolet Impala and Buick Regal. With earnings expected to soar by 49%, dividends expected to increase by 20% and a current dividend yield of 3.2%, General Motors is looking like one of the most profitable stocks as it is trading at just about $37 per share right now. Historical share price movements can be seen below:

Competitive advantage over peers

The next best dividend stock according to Warren Buffett is the wireless service provider, Verizon Communications (NYSE:VZ). The stock features in this list because of its good dividend yield (4.5%) and its relatively low share price (around $49). Most of the experts, including Buffett, believe that the stock is grossly undervalued when compared to its potential. The very fact that Verizon has been able to stand tall in spite of stiff competition from peers speaks volumes about the success of the company. Today, it is the largest wireless service provider in the U.S.; for Q4 2014 alone, the company witnessed an increase in its subscriber base by close to 2 million. It is now focusing on a high level of spectrum repurchases with the funds it generates through sale of non-important assets. This move guarantees increased profits to the company, which will eventually be returned to shareholders in the form of dividends. The historical patterns of dividends and share prices are seen below:

Conclusion

These stocks should definitely be considered in your portfolio because they have been recommended by Warren Buffett, an investing icon, whom many people look up to. Buffett has picked these stocks based on various futuristic features and with the sole aim of returning maximum possible returns to shareholders.

About the author:

reports.droy
We are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold any stock or investment position in any of the companies that we write for.

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aapete
Aapete - 4 years ago    Report SPAM

What do you base these claims on?

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