At Investment Underground, we're always searching for yield. After our recent study of top income producing stocks in George Soros' portfolio, we decided to take a look at Buffett next. Below are the 13 highest yielding stocks in Berkshire's (NYSE:BRK.A)(NYSE:BRK.B) portfolio in order form highest to lowest, plus some commentary on each …
Glaxo Smith Kline PLC (NYSE:GSK): Along with investing gurus Bill Nygren and Joel Greenblatt, Buffett holds 1,510,500 shares of GSK, making it one of his smaller positions (.11% of Berkshire's portfolio). The pharmaceutical giant is currently trading at a 37.11 P/E ratio, and offers a $2.46 (6.50%) dividend. With almost $4 billion in cash on hand, GSK has more than enough gun powder to get involved with new biotech partnerships and shorten its development cycle. And as we outlined here, GSK is a great inflation-proof blue chip for 2011.
After 18 years in a partnership with Human Genome Sciences (HGSI), GSK finally has its first reward after the FDA approved a new lupus treatment discovered by the group. The group has several treatments for other conditions still in testing.
Kraft (KFT): This solid consumer name pays 3.8% dividend yield. Buffett owns 105,214, 558 shares, making it a relatively large positions in his portfolio (6.4%). As we mentioned here, Buffett's loss in Kraft will not be written down. Buffett showed disappointment in Kraft management when it purchased Cadbury, but we think the acquisition will be a positive in the long run despite its price tag. KFT has a P/E of 22.0, P/B of 1.5, and P/S of 1.1. The respective industry averages are 17.7, 3.9, and 1.4. Between 2001 and 2007, the price to sales multiples were 1.6, 2.3, 1.8, 1.9, 1.4, 1.7, and 1.4, respectively. In 2010, EPS grew by 17.73% to $2.39, after rising by 5.73% in 2009. The company expects 11% to 13% growth in EPS in 2011. The Q1 2011 earnings statements are revealed on May 2. We value shares at $33 per share using a 10% discount rate.
Johnson & Johnson (NYSE:JNJ): A classic Warren Buffett pick. JNJ yields 3.6%. The healthcare giant trades 12.5 times EPS, 2.9 times book value per share, and 2.7 times revenues per share. The respective industry averages are 13, 2.7, and 2.5. In 2010, EPS was $4.78, which was an increase of 8.64%, after falling 3.72% in 2009. For 2011, the company expects EPS to be between $4.72 and $4.82. Q1 2011 earnings come out on April 19. Guru Bill Nygren also maintains a position.
Procter & Gamble (NYSE:PG): Buffett holds over 76 million shares of this consumer goods and healthcare giant. It has a P/E of 16.8, P/B of 2.7, and P/S of 2.4. The respective industry averages are 18, 3.9, and 2.0. Between 2001 and 2007, PG shares traded with P/S multiples of 2.8, 2.9, 3.0, 2.8, 2.5, 3.0, and 3.1, respectively. In 2010, EPS declined by 3.52% to $4.11, after increasing by 17.03% in 2009. In 2011, the company expects EPS to be between $3.89 and $3.99. We think shares trade at a discount to our fair value estimate of $70 using a 9.5% discount rate for the company. The company yields 3.2%.
ConocoPhillips (NYSE:COP) Buffett owns around 29 milliion shares on COP. In 2010, the company made a GAAP EPS of $7.62, which was an increase of 135.19% from $3.24 in 2009. In 2008, that figure stood at - $11.16. In 2010, revenues grew by 29.98% to $198.65 billion, after dropping by 37.92% in 2009. EBT margins also improved in 2010 to 9.94% from 6.56% in 2009. For 2011, the Street expects proforma EPS to come in between $6.28 and $9.21. Proforma EPS in 2010 was $5.92. The next earnings release is scheduled for April 25, with analysts expecting a range from $1.45 to $2.26. In Q1 2010, proforma EPS came in at $1.47.
COP shares trade with a price to sales multiple of 0.6. This is the company's second highest multiple since 2001. The debt to equity ratio is 0.33. This company also has significant exposure in Saudi Arabia. For more details, click here. The company yields 3.2%.
Sanofi-Aventis (NYSE:SNY): Berkshire maintains a $130 million stake in the giant drug-maker. Some of these are held as depository receipts, and shares held on non-US exchanges are found in Berkshire's annual reports. Buffett began accumulating the Sanofi stake in the second quarter of 2006. His initial purchase prices were between $44.52 and $47.51, with an estimated average price of $46.1. His holdings amounted to 488,500 shares. Berkshire added significantly to the stake in quarter 1, 2007, increasing it by 70%. We value shares at $48 apiece on a discounted cash flow basis. We use a 9.5% discount rate. Shares yield 3.2%.
M&T Bank (NYSE:MTB): The Manufacturer's and Trader's Trust Company originally serving workers on the Erie Canal is now 600+ branches strong clustered along the east coast with a strong position in the growing D.C. market. The company has a strong management team led by Robert Wilmers who has a good track record of conservative earnings growth. We value MTB at $90 per share, assuming just under 4% asset growth and a 10% cost of equity. The company yields 3.2%.
Coca-Cola Company (NYSE:KO): Coke has paid dividends since 1893. Right now, the yield is 2.9%. Recorded investors on March 15 will get their next dividend payment on April 1. Over the last five years, share prices are up over 50%. They currently trade at a P/E of 12.7. For 2010, reported net revenue was $35.1 billion. Over the past five years, EBT margins have consistently been in the upper 20s, whereas for Dr. Pepper Snapple (DPS), it has been between 14% and 15%. The ROIC for Dr. Pepper Snapple was 9.5% in 2010, but for Coca-Cola it was right near 20%. In 2010, the company returned $7.2 billion to shareowners in 2010, through $4.1 billion in dividends and $3.1 billion in share repurchases. In 2011, it expects to repurchase $2 billion to $2.5 billion in stock over the course of the year as part of a share repurchase program. The company expects its acquisition with Coca Cola Enterprises to have 2011 cost synergies of $140 to $150 million.
General Electric (NYSE:GE): Buffett owns a helping of shares, and we recently noted that the gurus at Dodge & Cox hold a hefty 134 million shares of the industrial conglomerate. GE is a diversified technology, media and financial services company. GE's products and services include aircraft engines, power generation, water processing, security technology, medical imaging, business and consumer financing, media content and industrial products. Currently, GE is trading at a 16.69 P/E multiple and paying a dividend of $0.14/share. GE has experienced significant volatility throughout the last two week due to concerns about their boiling water reactors in Japanese nuclear plants that had experienced damage due to the catastrophic earthquake and tsunami on March 11. The risk for GE extends beyond their exposure to the crisis in Japan, as people in the US begin to question the safety of GE's boiling water reactors that are found in 23 of the 104 atomic power plants in the US.
United Parcel Service (NYSE:UPS): UPS yields 2.8%. Buffett owns a rather small stake—almost 8 million shares in this shipping company. The company trades on a P/E of 21.80 at the time of writing. The company maintains a strong economic moat, which will likely widen with the general decline in traditional mail. As the company grows, we believe the company will be able to maintain solid profitability and returns on invested capital moving forward. Shares trade at $74.49 at the time of writing.
Washington Post (WPO): Shares yield 2.2%. The Washington Post Company is a diversified education and media company. The company's Kaplan, Inc. subsidiary provides a variety of educational services, both domestically and outside the United States. WPO's newsprint holdings are concentrated in their flagship Washington Post newspaper, but WPO also has magazine holdings in Newsweek, and operates six television broadcast stations. WPO has a market cap of $3.55B, pays a dividend of $2.35/share, and has operating cash flows of $693M.
Exxon Mobile (NYSE:XOM):Exxon is a well-diversified company, with exposure to markets throughout the world. The firm made a big push into natural gas, which many experts claim to be the energy source of the future, with its $31B acquisition of XTO Energy. This natural gas position could be especially beneficial if nuclear power production is reduced after the disasters in Japan, as natural gas is more of a substitute than oil. If the Fed decides to withdraw QE2, we think Exxon will survive, as we wrote here. Buffett owns 421,800 shares. At a market cap of just over $400B, the energy giant is the largest company in the world. Trading at a P/E of 13, Exxon pays a $1.76 (2.10%) dividend. Exxon is undoubtedly a leader in the energy business, and operates at an above-average 12.01% operating margin. Over the last 12 months, XOM also has an outstanding 23.43% ROE, better than 90% of the companies in the industry.
Disclosure: I am long BRK.B.