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3 ‘Smart Money’ Dividend Stocks

These income plays sit squarely in the sights of Buffett and others

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wells fargo wfc stockWells Fargo

No guru list is complete without a mention of the Sage of Omaha, so I’ll start with Warren Buffett.

I wrote a short piece last week outlining some of Berkshire Hathaway’s (BRK.B) recent purchases, though most of the comments centered around non-dividend-paying companies such as Dish Network (DISH).

Interestingly, none of Buffett’s major new additions are “dividend-focused,” per se. Suncor Energy (SU), one of his larger new holdings, pays a modest 2.3%.

Perhaps his most promising dividend payer is his old standby, Wells Fargo (WFC). Buffett has owned Wells Fargo for years, and it is currently the largest single holding in his portfolio. He has been adding to the position throughout 2013, and he snapped up nearly 5 million shares last quarter.

Wells Fargo might seem an odd choice as a “dividend stock,” given that the company yields only 2.8%. Like most banks, Wells Fargo slashed its dividend during the crisis to conserve capital. Yet since 2011, Wells Fargo has been aggressively raising its dividend, from 5 cents per quarter in February of that year to 30 cents per quarter today. The dividend is now nearly back to pre-crisis levels.

We can’t expect the dividend to rise by a factor of six again over the next two years; those sorts of jumps only happen when you take those first steps out of crisis. But I do expect the bank to deliver better-than-average dividend growth for the next several years.

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