Warren Buffett's Dividend Stock Picks For The Long Term

|
Includes: COP, GE, GSK, INTC, JNJ, MDLZ, PG, SNY
by: Dividendinvestr

Warren Buffett is one of the greatest investors of all time. His track record is mind-numbing but during the past decade he shifted his focus from “becoming wealthy” to “staying wealthy”. He explained in 2006 that one of the best ways of staying wealthy is investing in high dividend stocks with stable businesses, like utilities. He has been holding on to his positions for years if not decades to minimize taxes. We recommend investors follow a similar strategy in order to protect their investments and grow their portfolio at modest rates. This is a better alternative to investing in long-term government bonds which yield around 2%.

Here are Warren Buffett’s dividend stock picks. The average yield of these stocks is more than both 10-year treasuries and 30-year treasuries.

Company Name

Ticker

Buffett’s Position

Dividend Yield

PROCTER & GAMBLE CO

PG

4,850,077

3.26%

KRAFT FOODS INC

KFT

3,013,695

3.21%

JOHNSON & JOHNSON

JNJ

2,384,985

3.57%

CONOCOPHILLIPS

COP

1,842,671

3.72%

INTEL CORP

INTC

199,167

3.40%

SANOFI AVENTIS

SNY

133,289

5.23%

GENERAL ELECTRIC CO

GE

118,380

4.04%

GLAXOSMITHKLINE PLC

GSK

62,369

4.90%

Click to enlarge

Buffett just recently initiated a position in Intel Corp (NASDAQ:INTC). Berkshire Hathaway (NYSE:BRK.A) spent nearly $200 million to acquire INTC shares in the third quarter. INTC has a dividend yield of 3.40% and returned 18.25% since the end of third quarter, versus 11.40% for SPY. Billionaire Ken Fisher was also bullish about INTC. His Fisher Asset Management owned $400+ million INTC at the end of the third quarter.

The largest high dividend position in Buffett’s portfolio at the end of September was Procter & Gamble Co (NYSE:PG). The stock has a dividend yield of 3.26% and Buffett invested $4.85 billion in it. Since the end of September, PG returned 3.67%, versus 11.40% for SPY. Ken Fisher was in favor of PG as well. His fund had $266 million invested in PG shares. Buffett also invested over $1 billion in Kraft Foods Inc (KFT), Johnson & Johnson (NYSE:JNJ), and ConocoPhillips (NYSE:COP). Since the end of September, these three positions generated a weighted average return of 8.37%.

Other large cap dividend stocks Buffett is bullish about include Sanofi Aventis (NYSE:SNY), Generatl Electric Co (NYSE:GE), and GlaxoSmithKline Plc (NYSE:GSK). GE recently boosted its quarterly dividend to $0.17 per share. These stocks are like to boost their dividends over the next 10 years, potentially increasing the effective dividend yields for long-term stock holders. The only way an equally weighted portfolio of these stocks can underperform the 10-year treasuries is that they lose more than 15% over the next 10 years, assuming they hold their dividend yields constant.

Out of these eight stocks our favorite stocks are Intel and ConocoPhillips. Procter & Gamble, Johnson & Johnson, and Kraft have stable businesses and steady income streams. These stocks are great alternatives to 10-year Treasuries, however, their PE ratios are at least 20% higher than the entire market and their earnings are expected to grow at slower rates than the market. We don't think these stocks have significant upside potential. On the other hand Intel and COP trade at less than 10 times their current earnings and these stocks' earnings multiples are at least 20% less than the entire market's. We expect these stocks to increase their dividends significantly over the next five years. We also expect them to deliver significant gains in price on top the dividends they are distributing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.