Warren Buffett: Closet Dividend Investor

Some of my fellow dividend investors have accused Warren Buffett of being a closet dividend investor. I won’t quite go that far, but there is significant common ground between dividend and value investors. With that said, let’s take a close look at Mr. Buffett’s most recent 13-F filing with the Securities and Exchange Commission.

Comparing Berkshire Hathaway’s (BRK.A) December 31, 2008 13-F with its March 31, 2009 13-F, I made the following observations for Q1/2009:

• BRK didn’t add any new positions to its portfolio
• BRK didn’t fully liquidate any positions in its portfolio
• BRK added shares in seven stocks: BNSF Railway (BNI), Union Pacific (UNP), Wells Fargo (WFC), U.S. Bancorp (USB), Johnson & Johnson (JNJ), and Nalco Holding Company (NLC)
• BRK reduced shares in four stocks: CarMax (KMX), ConocoPhillips (COP), Costco Wholesale Corporation (COST) and Constellation Energy Group, Inc. (CEG)

Of the stocks held in BRK’s 13-F portfolio, the following ones are either held in my income portfolio or are on my watch list of dividend stocks:

Coca Cola (KO) - Yield 3.34% - Analysis
The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world.

Johnson & Johnson (JNJ) - Yield 3.55% - Analysis
Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field.

Kraft Foods (KFT) - Yield 4.44% - Analysis
Kraft is engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products.

Lowes Companies (LOW) - Yield 1.89% - Analysis
Lowe’s Companies, Inc. is a home improvement retailer.

M&T Bank (MTB) - Yield 5.57%
M&T Bank Corporation is a bank holding company. As of December 31, 2008, the Company had two wholly owned bank subsidiaries.

Procter & Gamble Co. (PG) - Yield 3.39% - Analysis
The Procter & Gamble Company is focused on providing branded consumer goods.

Wal-Mart Stores, Inc. (WMT) - Yield 2.19% - Analysis
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide.

In addition, Buffett continues to hold a position in several stocks that I sold over the last twelve months for either cutting or failing to raise their dividend. Those are:

Bank of America Corporation (BAC) - Yield 0.35%
Bank of America Corporation (Bank of America) is a bank holding company and a financial holding company.

General Electric (GE) - Yield 9.20%
General Electric Company is a diversified technology, media and financial services company.

The Home Depot, Inc. (HD) - Yield 3.89%
The Home Depot, Inc.is a home improvement retailer selling an assortment of building materials, home improvement and lawn and garden products, and provide a number of services.

SunTrust Banks, Inc. (STI) - Yield 3.04%
SunTrust Banks, Inc. is a diversified financial services holding company whose businesses provide a range of financial services to consumer and corporate clients.

U.S. Bancorp (USB) - Yield 1.04%
U.S. Bancorp operates as a financial holding company and a bank holding company. U.S. Bancorp provides a range of financial services, including lending and depository services, cash management, foreign exchange, and trust and investment management services.

It is not surprising that the most famous value investor holds several dividend stocks. Historically, stocks that pay dividends have out-performed those that don’t. When you buy dividend stocks at a discount, it’s like turbo-charging your return!

Full Disclosure: Long in JNJ, KO, MTB, PG, WMT . See a list of all my income holdings here.

Comments

[Living4Divi...:]

Nice article, Dividends4Life - you made some good points. As well, in that list are some good dividend-growth stocks.

When you own the entire company, you don't need divys. Warren Buffett is not a closet dividend investor, instead he is a Cash-Flow investor. He buys companies outright that have great cash flows, and then uses that money for his other investments.

He doesn't live off the money, he lives pretty cheaply. Plus he gets all of his food and beverage for free from KFT and KO

Jun 09 05:42 PM

[Living4Divi...:]

GE cut its dividend. Are you displaying the trailing dividend or the forward dividend?

Jun 09 05:46 PM

[Michael D.:]

Living4Dividends: How does WB access the cashflows (for his other investments) when purchasing companies with 'Cash-Flow'?

Dividends. Or else those 10% preferreds (GE).

OP: Please correct the GE yield forward looking.

Jun 10 08:49 AM

[Living4Divi...:]

Micheal D:

True when Warren buys stock, like KO or KFT, or GE preferreds he can only access the cash flow thru the dividend mechanism.

However, Warren does not just buy stock of publicly listed companies. He buys entire private companies, the whole thing. That is what I was referring to earlier. Since he holds all of the company, he is the sole shareholder, he can do whatever he wants with the companies cash flow, he can siphon cash to fund his other acquisitions (after all it's HIS money).


On Jun 10 08:49 AM Michael D. wrote:

> Living4Dividends: How does WB access the cashflows (for his other
> investments) when purchasing companies with 'Cash-Flow'?
>
> Dividends. Or else those 10% preferreds (seekingalpha.com/symbo...).
>
>
> OP: Please correct the GE yield forward looking.

Jun 10 11:35 AM

[Graham and ...:]

Warren Buffett is certainly an INCOME investor. He now likes municipal bonds.

Jun 10 04:25 PM

[discov:]

He likes muni bonds and WFC ( tinyurl.com/lzu8ba )

I still don't like BRK

Jun 10 06:00 PM

[Advill:]

Which is the expected new yield of GE?
Regards.

On Jun 09 05:46 PM Living4Dividends wrote:

> GE cut its dividend. Are you displaying the trailing dividend or
> the forward dividend?

Jun 11 01:53 PM