Warren Buffett has always been attracted to stocks that return capital to shareholders.
Some high dividend-yielding stocks in Berkshire Hathaway’s portfolio have been Buffett’s favorites over the years.
Good dividend stocks have a track record of paying dividends and generate enough cash flow and earnings to keep paying their dividends.
Berkshire Hathaway may never pay a dividend, but that hasn’t stopped Warren Buffett from buying some great dividend stocks for Berkshire’s massive, nearly $277 billion equities portfolio. Buffett has always been a fan of companies that buy back stock and pay dividends because the shareholders get capital every year, without having to worry as much about the stock price.
Dividend stocks can be great for retail investors too because they are more reliable, although it’s key to make sure that the dividend stocks you buy can keep paying the dividend and potentially raise it over time. Here are two of the smartest dividend stocks in Buffett’s portfolio to buy with $5,000 right now.
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The large digital audio producer Sirius XM(NASDAQ: SIRI) is down about 2% this year (as of April 29), which means it’s outperforming the broader market. Berkshire Hathaway loaded up on it in 2024, banking on a big turnaround story, as the owner of Sirius satellite radio and Pandora fights to ward off intense competition and tries to get subscription revenue moving in the right direction.
Sirius faces competition from the likes of Spotify, but has worked to revamp its offerings through better technology and subscription offerings, and by acquiring the exclusive advertising and distribution rights of some big podcasts. In 2024, total revenue at the company fell about 2.8% and subscribers fell across the board. Management’s long-term goals are to add another 10 million subscribers to reach about 50 million, while growing free cash flow by 50% to about $1.8 billion. It plans to achieve this through new pricing options, a new in-vehicle tech platform, expansion of podcasting, and new premium features and ad-supported offerings.
But at this point, the best thing Sirius has going for it is its hearty 5% dividend yield, which looks to be quite sustainable at this point. The company reported a big loss in 2024 due to a one-time, non-cash impairment charge. However, in 2023, total dividend payments only consumed about 36% of earnings. Meanwhile, the company has a free-cash-flow yield of close to 13%, more than double its dividend yield.
Not only is Coca-Cola(NYSE: KO) one of the most iconic beverage companies in the world, but it’s been a staple of Berkshire’s portfolio for decades and a clear favorite of Buffett’s. The stock makes up about 10.5% of Berkshire’s total holdings and is the third-largest in the portfolio. Similar to Berkshire’s stock, Coca-Cola has trounced the market this year, up nearly 17%.
The company has surprised investors, reporting a nice fourth quarter of growth a few months ago and then beating earnings estimates once again in its first quarter of the year. Management also issued full-year guidance and called tariffs “manageable,” which is unlike the sentiment most companies have reported so far. Investors were worried about the threat of aluminum tariffs but management had previously said it has the flexibility to focus on plastic packaging.
There are several reasons to like Coca-Cola as a dividend stock. Not only is the yield solid, but Coca-Cola has raised its annual dividend for 63 straight years. The company has also returned more than $93 billion to shareholders since 2010. Based on Coca-Cola’s first-quarter earnings per share of $0.77 and the dividend announced in February, the company currently has a dividend coverage ratio (dividend/earnings) of about 66%. Management is also projecting about $9.5 billion of free cash flow in 2025 (excluding a fair life contingent consideration payment), while dividend payments are expected to amount to slightly below $8.8 billion.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Spotify Technology. The Motley Fool has a disclosure policy.
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