Warren Buffett Owns 9 Ultra-High-Yield Dividend Stocks. Here's the Best of the Bunch.

Globe and Mail

a day ago

Key Points
Buffett's Berkshire Hathaway portfolio includes only one ultra-high-yield stock.
However, his "secret portfolio" is loaded with ultra-high-yielders.
The best of the bunch has increased its dividend for 30 consecutive years and has solid growth prospects.
Warren Buffett is known as a value investor, not as an income investor. However, that doesn't mean the "Oracle of Omaha" doesn't own stocks that many income investors would find highly attractive.
You might be surprised that Buffett even has positions in nine ultra-high-yield dividend stocks. By the way, the threshold used for a dividend yield to qualify as "ultra-high" is four times the yield of the SPDR S&P 500 ETF. Here are all of Buffett's ultra-high-yield dividend stocks, along with which one is the best of the bunch.
Berkshire Hathaway's sole ultra-high-yielder
Buffett's Berkshire Hathaway portfolio features only one ultra-high-yield dividend stock: Kraft Heinz (NASDAQ: KHC). The food and beverage company pays a forward dividend yield of 6%.
Kraft Heinz's dividend yield isn't so high because the company has increased its dividend payout. Instead, it's the result of a steadily deteriorating share price over the last few years, combined with maintaining the dividend at the same level during the period.
Berkshire does have stakes in a couple of other stocks with yields that aren't too far away from meeting the ultra-high threshold. Oil and gas giant Chevron offers a forward dividend yield of 4.61%. Satellite radio and podcast provider Sirius XM Holding 's yield is 4.45%. However, the stocks didn't quite make the cut for our list.
Buffett's "secret portfolio"
Where can Buffett's other seven ultra-high-yield dividend stocks be found? In his "secret portfolio." I'm referring to the stocks owned by New England Asset Management (NEAM).
Berkshire Hathaway acquired General Re in 1998, which had acquired NEAM three years earlier. While NEAM reports its stock holdings to the U.S. Securities and Exchange Commission separately from Berkshire, Buffett owns all of the stocks in its portfolio just as much as he does any stock listed in Berkshire's SEC filings.
NEAM's two highest-yielding stocks are both business development companies (BDCs). Globus Capital BDC (NASDAQ: GBDC) pays an especially juicy forward dividend yield of 11.17%. It's followed by Ares Capital, the largest publicly traded BDC, with a yield of 8.57%.
A couple of big pharma stocks in Buffett's secret portfolio pay great dividends. Pfizer 's (NYSE: PFE) forward dividend yield is 6.78%, while Bristol Myers Squibb (NYSE: BMY) offers a forward yield of 5.29%.
There's one ultra-high-yield overlap between Berkshire's and NEAM's portfolios -- Kraft Heinz. NEAM also owns another food company with an exceptionally high dividend payout. Campbell's (NASDAQ: CPB), which is best known for its soups, pays a forward dividend yield of 4.99%.
Two real estate investment trusts (REITs) are also in the mix. Realty Income 's (NYSE: O) forward dividend yield is 5.6%. Lamar Advertising 's (NASDAQ: LAMR) yield is 4.99%.
Finally, Buffett owns a stake in telecommunications giant Verizon Communications (NYSE: VZ) via NEAM's portfolio. Verizon's forward dividend yield is a lofty 6.22%.
The best of the bunch
How can we determine which of these ultra-high-yield dividend stocks owned by Buffett is the best of the bunch? We should obviously consider the dividend yield. In addition, the ability of the company to continue paying (and preferably increasing) its dividend is important. Growth prospects and valuation should be included, too. Based on these criteria, I think three of the nine stocks stand out above the rest.
Ares Capital's sky-high yield is a big plus. The BDC has either maintained or grown its dividend for 63 consecutive quarters (almost 16 years). It's the leader in the fast-growing private capital market. Ares Capital has also trounced the S&P 500 since its initial public offering in 2004.
Verizon is a longtime favorite for income investors. Its juicy dividend appears to be safe with the company's growing free cash flow. Verizon has also increased its dividend for 18 consecutive years. The biggest knock against the telecom provider is that its revenue and earnings growth haven't been spectacular. However, Verizon could enjoy stronger growth going forward once its acquisition of Frontier Communications closes.
The best stock overall of the group, in my opinion, is Realty Income. Its dividend yield is very attractive. Even better, the REIT pays its dividend monthly and has increased its dividend for an impressive 30 consecutive years.
Realty Income has delivered a positive total operational return every year since its IPO in 1994. Its diversified real estate portfolio, with nearly 1,600 clients representing 91 industries, helps make the company's cash flow stable. The REIT also has strong growth prospects, particularly in Europe, where it faces minimal competition.
The main drawback with this stock is its valuation. Realty Income's shares trade at 43 times forward earnings. However, I think the company's sterling track record justifies a premium price tag.
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Keith Speights has positions in Ares Capital, Berkshire Hathaway, Bristol Myers Squibb, Chevron, Pfizer, Realty Income, and Verizon Communications. The Motley Fool has positions in and recommends Berkshire Hathaway, Bristol Myers Squibb, Chevron, Pfizer, and Realty Income. The Motley Fool recommends Campbell's, Kraft Heinz, and Verizon Communications. The Motley Fool has a disclosure policy.