Warren Buffett is one of the best investors of all time. There’s no denying this fact. As a result, it’s not surprising that most retail investors are interested in the top Warren Buffett stocks to buy. I know I am. In particular, today we’re going to focus on the top high-yield Warren Buffett stocks.
Berkshire Hathaway’s (NYSE:BRK-B) $330 billion portfolio consists of 50 stocks. The 10 highest-yielding ones have an average yield of 4.2%. That’s more than double the S&P 500’s 1.6% yield and above the 3.7% long-term average yield of a 5-year Treasury bill.
To determine the best high-yield Warren Buffett stocks to buy, I selected three that are also among Berkshire’s top five holdings. The stocks below have an average yield of 3.3%. They have also significantly underperformed the broader market on a year-to-date basis and over the past year.
So, not only do you get a great dividend yield, but you also get excellent entry points for each of these high-yield Warren Buffett stocks.
Bank of America (BAC)
Bank of America (NYSE:BAC) is Berkshire’s second-largest holding, accounting for 8.5% of its portfolio. Based on an annualized dividend of 88 cents, Berkshire’s more than 1.03 billion shares generated $908.9 million in annual dividend income for the holding company. Shares currently yield 3%.
In the first quarter, Berkshire added 2.8 million BAC shares for a 2.3% increase to its total holdings. It is Bank of America’s largest shareholder. During the first quarter, Berkshire eliminated two other bank stocks held for many years: U.S. Bancorp (NYSE:USB) and Bank of New York Mellon (NYSE:BK). So, its recommitment to BofA is a bullish sign.
Bank of America was one of Berkshire’s brilliant “Bank of Buffett” preferred stock investments. Buffett got the idea while taking a bath in 2011. As Business Insider reports:
Buffett eventually got through to [Bank of America Chief Executive Officer (CEO) Brian] Moynihan and proposed an investment in his company. Moynihan replied that Bank of America didn’t need the capital.
“I know, that’s why I’m calling,” Buffett responded, adding that accepting his money would provide stability, a stamp of approval, and a cash cushion.
Moynihan agreed, and the pair signed a deal less than 24 hours after speaking for the first time.
Berkshire got $5 billion in preferred stock with a 5% annual dividend redeemable at a 5% premium. More importantly, it got 700 million warrants exercisable at $7.14 a share anytime over the next decade.
Berkshire exercised the warrants in August 2017, swapping almost all of the preferred shares for the $5 billion cost of buying the stock at $7.14 a share. Berkshire got six years of dividends for nothing. The $5 billion in stock is worth 4x as much today, while Berkshire has purchased more than 300 million additional BAC shares.
Coca-Cola (KO)
Coca-Cola (NYSE:KO) is Berkshire’s fourth-largest holding, accounting for 7% of its equity portfolio. Based on an annualized dividend of $1.84, the 400 million shares held generate $736 million in annual dividends. Shares currently yield 3%.
The world’s largest manufacturer of non-alcoholic beverages has been slowly wading into the alcoholic beverages segment in recent years. Indirectly, the company’s most recent move was the acquisition of Finlandia vodka from Brown-Forman (NYSE:BF-B) for $220 million.
I say indirectly because it was bought by Coca-Cola HBC, which trades on the London Stock Exchange and Athens Stock Exchange. Coca-Cola owns 23% of the company. The purchase accelerates the Athens-based company’s move into the premium spirits market, which accounts for just 3% of its business.
As for Coca-Cola, it started selling ready-to-drink (RTD) cans of Jack Daniels mixed with Coke in the UK market. The Jack Daniels/Cola RTD combination was already a big draw in the UK. Making Coca-Cola the cola of choice will undoubtedly rev up sales.
Coca-Cola launched its first alcoholic product in Japan in 2018. It’s launched several more since through various partnerships. Its Jack Daniels & Coca-Cola product began selling in the U.S. in March. It also has deals with Molson Coors (NYSE:TAP) and Constellation Brands (NYSE:STZ).
As you can see, alcoholic products could become a major revenue stream for the beverage company.
Chevron (CVX)
Chevron (NYSE:CVX) is Berkshire’s fifth-largest holding, accounting for 5.9% of its portfolio. Buffett started buying the oil and gas producer’s stock in the third quarter of 2020 and currently owns 7% of the company. Based on an annualized dividend of $6.04, Berkshire’s more than 132.4 million shares generated $799.7 million in annual dividend income. Shares currently yield 3.8%.
The energy behemoth recently announced it would pay $7.6 billion to buy Denver-based oil and gas producer PDC Energy (NASDAQ:PDCE). PDC’s big asset is its daily 260,000 barrels of oil and gas production in Colorado’s Denver-Julesburg (DJ) basin. It makes the DJ basin one of the Chevron’s top five assets in terms of production.
With the company generating huge amounts of cash these days — its trailing 12-month free cash flow is $35.7 billion — it will quickly be able to repurchase the 41 million shares issued in the all-stock transaction.
This acquisition strengthens the company’s position within the U.S. market.
“PDC’s attractive and complementary assets strengthen Chevron’s position in key U.S. production basins,” said Chevron Chairman and CEO Mike Wirth. “This transaction is accretive to all important financial measures and enhances Chevron’s objective to safely deliver higher returns and lower carbon.”
When oil prices begin to trend higher, CVX stock should follow suit. In the meantime, it is one of the best high-yield Warren Buffett stocks to buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
