Seeking Alpha
Long only, dividend growth investing, large-cap, mega-cap
Profile| Send Message| ()  

The stocks that Warren Buffett owns through Berkshire Hathaway (BRKA.A) are the stocks that every long-term investor should take a good, hard look at. All the more so if they turn out to be good dividend payers.

One reason I don't like Berkshire Hathaway as an investment is that it does not pay any dividends. It is suitable only for extremely rich people. If you want an income stream from Berkshire, Buffett suggested during the last annual meeting, you should sell 2% of your stock every year. Imagine what kind of investment would it take to be able to sell 2% of Berkshire Hathaway every year.

Therefore, the best alternative for us dividend lovers is to search through the stocks held by Buffett through Berkshire Hathaway. In this article I will present 3 of those i believe are worth considering.

1.) Deere & Co (DE)

  • Current dividend yield: 2.13%
  • Annualized growth in total cash dividend paid since 2008: 11.72%
  • Annualized growth in EPS (earnings per share) - last 10 years: 21.52% (that's 5.8 times since 2003)
  • Number of shares in 2012 / number of shares in 2008 = 90.48%

Deere & Co Cash Flow

Fiscal Year Ending Oct 31

2012

2011

2010

2009

2008

Total cash from operations (millions USD)

1,168

2,326

2,282

1,985

1,949

Total cash from investing (millions USD) *

(4,004)

(2,621)

(2,109)

(57)

(1,426)

Free Cash Flow - FCF (millions USD)

(2,836)

(295)

173

1,928

523

Net income (millions USD)

3,065

2,800

1,865

874

2,053

Total cash dividends paid (millions USD)

(698)

(593)

(484)

(473)

(448)

FCF / cash dividends paid

-

-

0.36

4.07

1.17

Issuance (retirement) of stock, net (millions USD)

(1,527)

(1,497)

(230)

13

(1,569)

Basic/primary weighted average shares (millions)

397

417

424

423

431

Source: ft.com

*Deere & Co has spent 'only' $1.319 billion on CAPEX in 2012. The negative cash flow from investing reflects the fact that Deere & Co has invested $15,139 billion in 2012 to acquire 'receivables'. Obviously, it is financing the purchasers of its product directly.

Strengths:

  • serves the US agricultural sector, largest and most productive in the world
  • - Jim Rogers and many other analysts predict high profitability of agriculture in the future
  • high net profit margin of 8.50%
  • a rich man's stock, Bill Gates owns 7% of outstanding stock through Cascade Investment, L.L.C., Berkshire Hathaway owns 1% of outstanding stock

Weaknesses:

  • negative free cash flow
  • $22.453 billion in long term debt

2.) GlaxoSmithKline (GSK)

  • Current dividend yield: 5.71%
  • Annualized growth in total cash dividend paid since 2007: 5.00%
  • Annualized growth in EPS (earnings per share) - last 9 years: 12% (that's 2.5 times since 2003)
  • Number of shares in 2012 / number of shares in 2008 = 88.64%

GlaxoSmithKline Cash Flow

Fiscal Year Ending Dec 31 2011

2011

2010

2009

2008

2007

Total cash from operations (millions GBP)

6,250

6,797

7,841

7,205

6,161

Capital expenditures (millions GBP)

(1,328)

(1,635)

(1,873)

(2,069)

(2,143)

Free Cash Flow - FCF (millions GBP)

4,922

5,162

5,968

5,136

4,018

Net income (millions GBP)

5,261

1,634

5,531

4,602

5,214

Total cash dividends paid (millions GBP)

(3,406)

(3,205)

(3,003)

(2,929)

(2,793)

FCF / cash dividends paid

1.44

1.61

1.99

1.75

1.44

Issuance (retirement) of stock, net (millions GBP)

(1,932)

63

(1.00)

(3,654)

(3,244)

Basic/primary weighted average shares (millions)

5,028

5,085

5,069

5,195

5,524

Source: ft.com

Strengths:

  • Warren Buffett still owns 1,510,00 shares through Berkshire Hathaway (source here - page 10)
  • global leader in vaccines (Buffett wants Bill & Melinda Gates Foundation to vaccinate as many people as possible, source here - page 13)
  • net profit margin: 19.50%
  • long term debt / net income ratio of only 2.31

Weaknesses:

  • dependence on patented medicines - a highly expensive and regulated field of operations
  • determination of global health care providers to cut and control expenditure
  • intensification of competition from generic drug providers

3.) Tesco PLC (OTCPK:TSCDF)

  • Current dividend yield: 4.32%
  • Annualized growth in total cash dividend paid since 2008: 10.48%
  • Annualized growth in EPS (earnings per share) - last 10 years: 12.32% (that's 2.8 times since 2003)
  • Number of shares in 2012 / number of shares in 2008 = 101.86%

Tesco PLC Cash Flow

Fiscal Year Ending Feb 25

2012

2011

2010

2009

2008

Total cash from operations (millions GBP)

4,402

4,239

4,745

3,960

3,343

Total cash from investing (millions GBP)

(3,183)

(1,873)

(1,877)

(5,974)

(2,954)

Free Cash Flow - FCF (millions GBP)

1,219

2,366

2,868

2,014

389

Net income (millions GBP)

2,806

2,655

2,327

2,133

2,124

Total cash dividends paid (millions GBP)

(1,180)

(1,081)

(968)

(883)

(792)

FCF / cash dividends paid

1,03

2,19

2,96

2,28

0,49

Issuance (retirement) of stock, net (millions GBP)

(234)

67

143

(135)

(621)

Basic/primary weighted average shares (millions)

8,021

8,020

7,933

7,859

7,881

Source: ft.com

Strengths:

  • Leader in retailing in the United Kingdom
  • high net profit margin of 4.31%, Wal-Mart (WMT) has 3.73%
  • Berkshire Hathaway owns 5% of outstanding stock

Weaknesses:

  • Extensive international operations
  • 9.911 billion GBP ($15.692 billion) in long term debt, Wal-Mart has 2.66 long term debt / net income ratio vs. Tesco's 3.58
Source: 3 Warren Buffett Stocks To Buy Now And Hold Forever