57.7% of Warren Buffett’s $375 billion portfolio is invested in these two dividend-paying stocks

57.7% of Warren Buffett’s $375 billion portfolio is invested in these two dividend-paying stocks

TMF-Warren-Buffett-4-TMF-May-2014

TMF-Warren-Buffett-4-TMF-May-2014

According to Warren Buffett, “Investing is all about picking good stocks in good times and staying with them as long as they remain good companies.” Fortunately for us everyday investors, you don’t need to Berkshire HathawayResources for separating good companies from companies best avoided. Just look for dividend payers who keep raising their payouts.

Berkshire Hathaway doesn’t pay a dividend itself, but the vast majority of the stocks it owns do. Buffett is such a big fan of dividend payers that the majority of Berkshire’s holdings are concentrated in a few dividend-paying stocks. You may be surprised to learn that, at recent prices, just two stocks make up 57.7% of Berkshire’s stock portfolio.

Buffett is betting big on Apple

Buffett has been at the helm of Berkshire since 1965, but one of its largest investments ever did not enter his stock portfolio until 2016. That was the year Berkshire began building a massive stake in apple (Nasdaq: Apple)which quickly became the group’s largest holding.

Apple’s stock price has risen a staggering 627% since the end of the first quarterly period in which Berkshire disclosed its stake in the company. Additionally, quarterly dividends have increased by approximately 68% over the same time frame.

AAPL Dividend Chart

AAPL Dividend Chart

The huge gains combined with subsequent purchases have increased Berkshire’s stake in Apple to a staggering $181 billion at recent prices, or about 48% of Berkshire’s stock portfolio. The stock offers an uninspiring 0.5% yield at recent prices, but Buffett has accumulated about 915 million shares of the stock, so the quarterly payouts are significant.

Berkshire’s Apple Holdings will make a $220 million dividend payment in February and possibly more next quarter. The highly profitable company generated nearly $100 billion in free cash flow over the past 12 months and needs just 15% of that amount to meet its dividend obligation.

New investors who want to follow Buffett’s example can look forward to rising profits and increased dividends from Apple for at least another decade. iPhone sales aren’t growing very quickly, but Apple boasts more than 2 billion active devices. Selling high-margin services to these users increased EPS 13% in the fiscal fourth quarter that ended September 30.

Bank of America is boring but reliable

Buffet sits on over 1 billion shares of… American bank (NYSE: BAK)Or buffa. At 9.3% of the stock portfolio, it is Berkshire’s second-largest holding.

For decades, Buffett has been telling anyone who will listen that he believes in the ability of the American economy to grow over time. He likes to buy bank stocks after they’ve taken a beating because he knows that these cyclical companies benefit from periods of economic growth that tend to last much longer than the recessions that separate them.

The interest Bank of America receives on loans in 2023 has risen much faster than the interest it pays on its huge deposit base. The net interest margin improvement helped Q3 earnings per share rise 11% year over year.

BAC dividend chart

BAC dividend chart

At recent prices, BofA shares offer a 2.8% dividend yield and the opportunity for a much higher return on your original investment in the years ahead. The bank maintained its dividend in 2020, but it is still up 60% over the past five years.

Despite all the dividend speed bumps in recent years, Bank of America met its dividend commitment over the past 12 months with just 20.7% of free cash flow generated by its profitable banking operations. This means there is plenty of scope to increase its earnings a lot in the coming years. Buying the stock now to hold it for the long term seems like a smart move.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Bank of America. The Motley Fool has a disclosure policy.

57.7% of Warren Buffett’s $375 Billion Portfolio Invested in These 2 Dividend Stocks Originally published by The Motley Fool

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