Warren Buffett needs no introduction as arguably the world’s greatest investor.
With his Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) portfolio valued at more than $130 billion, Buffett has more than proven his ability to successfully pick the best blue-chip stocks.
However, many investors don’t realize that the majority of Warren Buffett’s stock picks pay dividends, including nine of his 10 largest positions.
Even better, almost a third of Warren Buffett’s dividend stocks offer a high-yield dividend in excess of 3%.
We studied each of Buffett’s high-yield dividend stocks and identified the three that offer the most reliable payments. Here they are, in order of yield:
Buffett’s Safest Dividend Stocks: Coca-Cola (KO)
KO Dividend Yield: 3.2%
The Coca-Cola Co (KO) has raised its dividend for more than 50 consecutive years and is a member of both the Dividend Aristocrats and dividend kings lists.
As the world’s largest beverage company, Coca-Cola boasts more than 20 brands with at least $1 billion in sales each. Altogether, Coke has more than 500 sparkling and still beverage brands. The business is also very diverse geographically with about 50% of its total case volume coming from Latin America and Asia.
Warren Buffett began buying shares of Coca-Cola in 1988, shortly after shares plunged amid the market crash of 1987. Berkshire Hathaway was likely attracted to the company’s strong brands that had been built up over many decades of time and billions of dollars in marketing and advertising expenditures.
Coca-Cola’s distribution platform is also very impressive. As consumer incomes rise in international and emerging markets, consumption of Coke’s products should rise to support long-term earnings growth.
Coca-Cola’s shares are a bit expensive at the moment at just under 22 times earnings, but KO offers a lot in the way of dividend stability and staying power.
Buffett’s Safest Dividend Stocks: Wells Fargo (WFC)
WFC Dividend Yield: 3%
Wells Fargo & Co (WFC) is Warren Buffett’s biggest holding and accounted for close to 20% of Berkshire Hathaway’s portfolio at the end of 2015.
Buffett’s stake in Wells Fargo was initiated in 1989 when investors were pessimistic about bank stocks. At the time, Buffett praised the managing prowess and conservatism of the company’s executives and culture. Since then, he has raised his stake to nearly 10%.
WFC is generally thought to be the highest quality major bank in the country and operates approximately 90 diverse business lines across areas such as mortgage lending, investments, insurance, and consumer and commercial finance services.
Importantly, Wells Fargo mostly stays away from investment banking and trading activities, which are thought to carry a higher risk profile than most of its other financial services.
As the third-largest bank in the country by assets, Wells Fargo enjoys meaningful cost advantages over its smaller peers because it can better leverage its expenses.
The bank’s lending operations, which accounted for just over half of its total sales last year, also benefit from having more retail deposits than any other bank in the country. Deposits help fund the loans Wells Fargo makes and cost the bank very little to maintain, ensuring it earns a positive spread even in today’s low interest rate environment.
Wells Fargo trades at less than 11 times earnings, and should interest rates begin to rise, WFC stock should do well.
Buffett’s Safest Dividend Stocks: Verizon (VZ)
VZ Dividend Yield: 4.5%
Verizon Communications Inc. (VZ) has rewarded shareholders with higher dividends for 11 consecutive years and operates in one of the best stock sectors for dividends.
Verizon is the largest provider of wireless services in the country, and its 4G LTE network reaches more than 98% of America’s population.
Almost all of Verizon’s operating profit is accounted for by its wireless operations, which consist of voice and data services and equipment sales. Over 112 million retail connections depend on Verizon for their communication needs, and the company generated sales in excess of $91 billion last fiscal year.
Warren Buffett began buying shares of VZ during the first quarter of 2014, and the company currently represents about 1.3% of Berkshire Hathaway’s portfolio.
Like many of Buffett’s stock picks, Verizon benefits from strong brand recognition, owns hard-to-replicate assets, sells essential services and maintains a dominate market share.
Verizon’s industry-leading wireless network cost billions of dollars to build, and the company is able to spread its costs over a larger pool of subscribers than its rivals to generate healthy profits. Consumers and businesses also need Verizon’s services regardless of how the economy is doing, creating inelastic demand for the company’s offerings.
These are some of the main factors that have helped Verizon generate consistent free cash flow and deliver decent returns on its investments
Shares of VZ trade at less than 13 times forward earnings estimates.
As of this writing, Simply Safe Dividends was long WFC and VZ.
