It is highly rewarding for investors to imitate the best holdings of guru portfolios, which often leads to significant profit returns. If one of those stocks is offering an enjoyable dividend, then this stock is usually a good buy. I have written a few articles regarding the top dividend stock picks of the most successful hedge fund managers.
Berkshire Hathaway is one of the best holdings in the world, which is ranked 8th by the Forbes Global 2000 list. It would be clearly helpful to imitate its portfolio when shaping your own. Warren Buffett has an unprecendent long-term success record when it comes to picking the most profitable stocks. Therefore, I have listed five of his stock picks that are offering substantial dividends, and explained my opinion about them. I have investigated these stocks from a fundamental perspective, adding my O-Metrix Grading System where possible. Here is a fundamental analysis on the top five dividend stocks in Berkshire Hathaway’s portfolio (Data from finviz/morningstar and is current as of October 7 close. You can download O-Metrix calculator, here.):
The Coca-Cola Co (KO): Zacks Equity Research reiterated its neutral call on Coca-Cola this quarter. It has a P/E ratio of 12.3, and a forward P/E ratio of 15.3, as of October 7. Analysts expect the company to have an 8.0% annualized EPS growth in the next five years. With a profit margin of 29.7%, it offers a nifty dividend of 2.85%.
Coca-Cola returned 10.9% in the last twelve months, while O-Metrix score is 3.93. The stock is trading 8.06% lower than its 52-week high, and its target price implies an 18.1% upside potential. Earnings increased by 72.75% this year, and 17.81% this quarter. Debt-to equity ratio is 0.3, far better than the industry average of 1.0. Gross margin is 61.7%. ROA, ROE, and ROI are 19.49%, 41.29% and 29.05%, respectively. Beta value is 0.58, while analysts give a 1.3 recommendation for the company (1=Buy, 3=Sell). Coca-Cola is 25.7% of Berkshire’s portfolio, and it is among the highest-yielders of the Dow. This stock is a screaming buy. Read a full analysis of Coca-Cola here.
Wells Fargo (WFC): Wells Fargo has earned U.S. Green Building Council’s leadership award recently. The company was trading at a P/E ratio of 9.0, and a forward P/E ratio of 7.4, as of Friday’s close. Five-year annual EPS growth forecast is 14.4%. Profit margin (16.5%) nearly quadruples the industry average of 4.3%, while it pays a 1.96% dividend.
Wells Fargo had a 26.21% EPS growth this quarter, and 27.81% this year. O-Metrix score is 9.97, and the stock is trading 27.74% lower than its 52-week high. Target price is $33.46, indicating a 36.3% upside movement potential. Wells Fargo returned -5.5% in a year. The stock has a nice downgrading process for its debts, and it has a five-star rating from Morningstar. Institutions hold 77.06% of the shares. Debt-to equity ratio is 1.2, below the industry average of 1.7. PEG value is 0.5. Wells Fargo is a profitable buy.
American Express Co. (AXP): American Express has expanded its long-term note sales from C$400 million to $600 million. The financial shows a trailing P/E ratio of 11.2, and a forward P/E ratio of 10.2, as of October 7. Estimated annual EPS growth for the next five years is 11.0%. With a profit margin of 16.0%, American Express offers a 1.66% dividend.
Target price is $57.26, implying a 31.8% increase potential. The stock is trading 18.94% lower than its 52-week high, while it returned 14.3% in the last twelve months. O-Metrix score is 5.41. American Express had a 27.49% EPS growth this quarter, and 117.0% this year. Institutions own 83.03% of the shares. The debt-to assets ratio is falling for the last five quarters, and it has a four-star rating from Morningstar. PEG value is 0.9. 16 out of 25 analysts recommends buying, and my opinion is no different.
Procter & Gamble (PG): 9.32% of Berkshire’s portfolio is composed of Procter & Gamble. As of October 7, it has a P/E ratio of 16.3, and a forward P/E ratio of 13.8. Analysts expect the company to have a 9.0% annual EPS growth in the next five years. It pays a 3.29% dividend, while the profit margin (14.0%) is higher than the industry average of 11.6%.
Earnings increased by 18.16% this year, and the stock is trading 4.85% lower than its 52-week high. Target price indicates an about 11.2% increase potential. Procter& Gamble returned 3.3% in a year, whereas its O-Metrix score is 4.08. Yields are outstanding. Debts are far from being a threat, while Beta value is 0.48. Debt-to equity ratio is 0.3, far better than the industry average of 1.4. ROE is 18.32%. Morningstar gives a four-star rating to Procter & Gamble, and average analyst recommendation is 1.5 (1=Buy, 3=Sell). The stock is relatively less volatile, and it will be an attractive buy after a pullback.
Kraft Foods (KFT): Kraft Foods has hired Heidrick & Struggles (HSII) to find leader candidates for its North American grocery business. The Illinois-based food company was trading at a P/E ratio of 19.3,and a forward P/E ratio of 13.3, as of the Friday close. Five-year annualized EPS growth forecast is 8.0%. Shareholders enjoyed a 3.44% dividend last year, while the profit margin is 5.9%.
Kraft Foods returned 9.1% in a year, and the stock is currently trading 6.22% lower than its 52-week high. O-Metrix score is 4.30, whereas its target price implies a 15.8% upside movement potential. Institutions own 75.58% of the shares. Debt-to assets ratio is going down since Q2 2010. Debt-to equity ratio is 0.6, far lower than the industry average of 1.3. Beta value is 0.55, and analysts give a 1.90 rating for Kraft Foods (1=Buy, 5=Sell). Moreover, Morningstar gives a four-star rating to the stock.
On the other hand, PEG value is 1.7. Kraft Foods is yielding the same amount of dividend since September 2007. ROA is 3.22%, and ROE is 8.49%, both of which are way below their industry averages. It had a -23.87% EPS growth this year, whereas insiders hold only 0.11% of the shares. Kraft Foods recently double-topped, and holding would be the best for now.