Warren Buffett, through his Berkshire Hathaway (NYSE:BRK.A, BRK.B) investment company, has crafted one of the most closely watched investing strategies on all of Wall Street. That means each quarterly filing from Berkshire Hathaway is a very big deal. It gives individuals a chance to see what Buffett is buying, and compare the moves to their own portfolios.
As of March 31, 2012, Berkshire divulged its latest moves — including a larger position in small-cap dialysis stock DaVita (NYSE:DVA) and satellite cable provider DirecTV (NASDAQ:DTV), and a smaller position in discounter Dollar General (NYSE:DG).
But for dividend investors wondering what Buffett thinks of income investments, I’ve taken a look at the latest filings and screened for the best dividend potential.
Here are the five biggest-yielding dividend stocks currently in the Berkshire Hathaway portfolio:
Berkshire Shares: 1.74 million
Returns: -10% 1-year return vs. a flat Dow,
-79% 5-year return vs. -11% for Dow
Warren Buffett and Berkshire Hathaway have been making headlines lately for big buys in the newspaper industry. But media giant Gannett (NYSE:GCI) has been a member of the portfolio for quite some time. What might surprise you most, however, isn’t the long-time Buffett investment in this stock, but the fact that Gannett just pushed its dividend up 500% in roughly a year! GCI stock was paying a mere 4 cents per quarter in July 2011, then upped its dividend to 8 cents in October and finally to 20 cents a quarter starting this spring. That’s good for a phenomenal 6.5% dividend yield at current valuations. Also worth noting: Gannett dividends have been in force since 1929, so this is a company with a long history of paying back shareholders.
Just be warned: The shares themselves have fallen off a cliff as newspapers have struggled to adapt to the digital age. A horrible five-year return of about -80% is hardly something low-risk income investors should be drawn to.
Berkshire Shares: 7.77 million shares
Returns: -4% 1-year return vs. a flat Dow,
-51% 5-year return vs. -11% for Dow
General Electric (NYSE:GE) burned a lot of dividend investors back in 2009 when it slashed its payout 68%, from 31 cents to just 10 cents a quarter. But while payments are not what they once were, GE has steadily increased its payouts and currently is dishing out dividends of 17 cents a quarter — good for a 3.8% yield right now. General Electric is a diversified industrial company with health care, infrastructure and aviation businesses. But what’s really encouraging for income investors right now is the fact that its GE Capital arm has finally won approval to start delivering dividends back to shareholders. This could mean even more income potential in shareholders’ future.
Of course, GE shares haven’t exactly been kind to investors, lagging the market in the short term and suffering big losses in the wake of the financial crisis. So buyer beware.
Berkshire Shares: 1.51 million shares
Returns: +2% 1-year return vs. a flat Dow,
-15% 5-year return vs. -11% for Dow
Big Pharma means big yield for many investors, and Warren Buffett has staked out a position in this income-rich sector, too. Berkshire Hathaway has 1.51 million shares of the U.K. drugmaker GlaxoSmithKline (NYSE:GSK). Dividends at GSK aren’t as consistent as with domestic pharmaceuticals, but the last four quarterly distributions range between 52 cents and 82 cents a share. Add up the last four consecutive payments, and you get $2.43 cents annually for a hefty 5.6% yield. If you want to be conservative, however, four quarters at the lowest payment of 52 cents gets you to $2.08 annually — which isn’t as rosy, but still an impressive 4.8% yield.
Like many pharma stocks, GSK has been pulled between the relative stability of the health care sector and the looming threat of patent expirations weighing on the bottom line. The result is a performance that has more or less tracked the market.
Johnson & Johnson
Industry: Consumer Health
Berkshire Shares: 29 million shares
Returns: -6% 1-year return vs. a flat Dow,
-2% 5-year return vs. -11% for Dow
Johnson & Johnson (NYSE:JNJ) is one of the biggest holdings in the entire Berkshire Hathaway portfolio. While many other health care stocks are in the lineup, the 29 million shares of J&J add up to a position of roughly $1.8 billion dollars. Unlike GSK, however, J&J is a health care company focused on consumers and drug stores as much as doctors and hospitals. That’s because J&J is behind big brands including Tylenol and Band-Aids, just to name a few polestars of its consumer health division. Reliable sales from these products adds up to a healthy yield of 3.9% at current valuations. Dividends have been paid since 1944, and a dividend increase announced just a few weeks ago proves Johnson & Johnson cares about keeping income-oriented investors happy.
However, FYI: Buffett sold some of his position in J&J in the latest filing. At its peak, this position was 62 million shares strong in the Berkshire portfolio, but is now less than half of that.
Berkshire Shares: 4.06 million shares
Returns: -12% 1-year return vs. a flat Dow,
-30% 5-year return vs. -11% for Dow
Sanofi Aventis (NYSE:SNY) is another dividend-paying health care play in the Berkshire portfolio. Like GSK, Sanofi is a foreign drugmaker and thus has a less reliable dividend policy. In fact, this company pays annual dividends instead of quarterly ones. SNY paid a regular dividend $1.43 in May for a yield of 4.2% on current shares. That’s a good yield — but it’s worth noting the payday won’t come around again for roughly 11 months, so take that into account.
It also must be pointed out that the performance of Sanofi on a per share basis is a little less impressive than GlaxoSmithKline, with underperformance in both the short term and longer term.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace??.com or follow him on Twitter via @JeffReevesIP.