Warren Buffett is the chairman and CEO of Berkshire Hathaway Inc. (NYSE:BRK.A). He is also one of the world's legendary investors. In the year 2008, he was #1 in the Forbes’s list of global billionaires. As of March 2011, with his net wealth of $50 billion, he became the world’s third wealthiest person according to Forbes. In his portfolio, there are 26 stocks worth $54 billion, from a range of sectors including financials, consumer goods, healthcare and energy. As an investor, he follows in the footsteps of Benjamin Graham and Philip Fisher. Buffett characterizes himself as such:
I’m 15 percent Fisher and 85 percent Benjamin Graham. The basic ideas of investing are to look at stocks as business, use the market's fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now, they will still be the cornerstones of investing.
I have read Benjamin Graham's The Intelligent Investor several times. It is a must read for all long-term income seekers. Benjamin Graham has simple rules for both defensive and enterprising investors. One common rule for both is the dividend payment. Graham suggests a long record of continous dividend payments for defensive investors. He also suggests at least some sort of dividend for the enterprising investors. As Warren Buffett is 85% Benjamin Graham, he prefers blue chips paying substantial dividends.
Here is a brief analysis of Warren Buffett’s top 8 holdings, offering dividend yield over 3%:
1. Sanofi-Aventis (NYSE:SNY): The Paris-based healthcare company was formed in the year 2004 with the unification of Aventis and Sanofi-Synthélabo. Sanofi's market cap is $98 billion. With a dividend yield of 4.76%, Sanofi-Aventis has the highest yield in Buffett’s portfolio. The company’s P/E ratio is 13; Its forward P/E ratio is expected to fall to 8 according to Morningstar. In the last five years, shareholders experienced an EPS growth of 20.04%, and this year earnings are expected to rise by an additional 3.77%. Sanofi-Aventis’s gross margin is 70.60%, net profit margin is 12.06%. SMA20 and SMA50 stands at 1.16% and 8.31%, respectively. I think Sanofi-Aventis can be an excellent diversifier in a yield-oriented portfolio.
2. GlaxoSmithKline Plc (NYSE:GSK): Founded in 1935, GlaxoSmithKline is a British pharmaceutical company with a market cap of $113 billion. P/E ratio is 37.95, and forward P/E ratio is 11.82. Its dividend yield of 4.72% is also among the best in the industry. EPS increased by 13.48% in this quarter. While earnings decreased by 17.22% in the last 5 years, it is expected that EPS growth will be 5.47% in the next 5 years. At the last closing the stock's value was $43.26, 7.55% above of its 50-day moving average and 12.57% above of its 200-day moving average. The stock is up by a stunning 25% in the last 2 months. It might be better to wait for a pull-back before diving in.
3. ConocoPhillips (NYSE:COP): ConocoPhillips is an energy company that produces oil, natural gas and gasoline in Texas. The Company was formed by the merger of Conoco and Phillips Petroleum on 30 August 2002. ConocoPhillips is one of the largest energy companies in the world and is also ranked fourth on Fortune Magazine's 2011, top 500 American corporations. The market cap of COP is $103 billion, and it has a dividend yield of 3.64%. ConocoPhillips has a P/E ratio of 8.74, and a forward P/E ratio of 8.18. COP's sales increased by 27.28%, and earnings increased by 50.13% in the last quarter. However, on 28 April 2011, Deutsche Bank downgraded COP with a price of $85. It can be added to a portfolio if the stock retreats back to $65.
4. Johnson & Johnson (NYSE:JNJ): Founded in 1886, Johnson & Johnson is a US-headquartered pharmaceutical company, producing medical devices, pharmaceuticals and consumer goods. The company ranks 40th on the Fortune 500 list. The market cap of JNJ is $180 billion, which ensures a powerful position in its sector. The company's dividend yield is 3.47%. The P/E ratio of Johnson & Johnson is 14.90 and its forward P/E ratio is 12.49. In the past 5 years, EPS increased by 7.35%. Analysts estimate that earnings will rise by 6.24% in the next 5 years. At the last close, JNJ was 5.82% above of its 50-day moving average. On 29 April 2011, UBS upgraded JNJ's stock with a target price of $72, implying a 15% upside potential in the intermediate-term.
5. Kraft Foods Inc. (KFT): Kraft Foods Inc. was founded in Chicago in 1903. The company engages in manufactured meal products worldwide. Kraft Foods also bought Cadbury Plc in February 2011. The market cap of Kraft Foods is $62 billion and its dividend yield is 3.29%. The company’s P/E ratio is 20.36, and it has a forward P/E ratio of 14.15. Kraft's earnings have increased by 207.72% since the last quarter. Although the company experienced a fall in EPS by 3.49% over the past 5 years, it is expected that earnings will increase by 10.33% in the next 5 years. Insiders own 0.11% of the company while 74.54% of Kraft belongs to institutions. In the last 6 months, insider ownership increased by 24.46%. Institutional ownership also increased by 0.89% in the last 3 months. Similar to GSK, Kraft shares are up by 20% in the last 2 months. It could also be added to a diversified portfolio after a market correction.
6. M&T Bank Corp. (NYSE:MTB): Established in 1969, M&T Bank Corporation is the bank holding company of Manufacturers and Traders Bank (M&T Bank). The company has a remarkable growth history. M&T has grown from $2 billion in current assets in 1983 to $68 billion by the end of 2010. MTB has a market cap of $11 billion. MTB's policy is to pay regular dividends; the stock has a current yield of 3.18%. The net profit margin is 22.98%, and the operating margin stands at 34.31%. The company's P/E ratio is 14.39, while forward P/E falls to 11.77. Analysts estimate stunningly high EPS growth this year, which will increase the Street's interest sooner or later. On 11 November 2010, Stifel Nicolaus upgraded MTB with a target price of $100, implying 15% upside potential. Once the stock breaks $90 resistance, $100 would be the next level of resistance.
7. Procter & Gamble Co. (NYSE:PG): This Ohio-based company was founded in 1837 and produces consumer goods such as personal care and household cleaning products. The company is part of the DJIA index, and ranks #26 on the Fortune 500 list. Procter & Gamble has a market cap of $188 billion and has a current dividend yield of 3.12%. The P/E ratio of the Company is 17.73, and its forward P/E ratio is 15.74. In the past 5 years, EPS increased by 9.13%, and analysts estimate earnings will rise by 8.89% in the next 5 years. Procter & Gamble’s return on equity is 17.16%. At the last close, PG's stock was 2.80% above of its 20-day and 6.90% above of its 50-day moving average. Analysts’ mean recommendation for the stock is 1.80 for PG. Deutsche Bank has a target price of $72. If the upside momentum keeps up, PG will soon reach this target.
8. General Electric Co. (NYSE:GE): General Electric Company was established by Thomas Edison in 1892 with the union of Edison General Electric Company and Thomson-Houston company. The company offers a range of services within the energy, finance, health care, technology and media arenas. GE has been a part of the DJIA index since 7 November 1907. The company is #6 on the Fortune 500 list. With a market cap of $208 billion, General Electric is one of the most powerful companies in U.S. The company's dividend yield is 3.06%. While the P/E ratio is 15.57, forward P/E ratio falls to 11.89. General Electric has a PEG ratio of 1. In the last 5 years, shareholders experienced an annualized EPS decline of 6.74%. However, since the last quarter, EPS rose by 49.97%, and it is expected that in the next 5 years, earnings will increase by 15.60%, annually. SMA20 and SMA50 of GE stocks are -2.51% and -2%, respectively, which indicates that shares experienced a decline in recent days. Analysts have an average price target of $24, implying 20% upside potential in intermediate-term. General Electric is still going through significant reorganization, which will benefit the shareholders in long-term. Current prices justify a growth of 10% to 15% for the next 5 years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.