How Buffett Earns $2.7 Billion From 3 Stocks
It’s no secret that Warren Buffett, CEO of Berkshire Hathaway, has a soft spot for dividend paying stocks. Perhaps more surprisingly is that Buffett keeps a $157 billion cash hoard on the Berkshire balance sheet and refuses to pay a dividend to his own shareholders.
The reasoning is simple, Buffett thinks he and Berkshire can earn a better return on that cash than shareholders can. Still, he’s happy to accumulate dividends from companies who don’t share that philosophy. And he earns an absolute boatload from just three specific stocks.
Key Points
- Warren Buffett’s substantial ownership of Bank of America nets Berkshire Hathaway nearly $1 billion in dividends annually, despite the bank’s share price dip this year.
- As the sixth largest holding in Berkshire’s portfolio, Occidental Petroleum has provided Buffett with a 7-fold increase from its 2020 lows, alongside substantial annual dividends of $867 million.
- Apple pays out $878 million in dividends to Berkshire yearly, a significant return on investment for Buffett, who regrets selling any Apple shares and sees potential for increased dividends.
1 Stock Pays Almost $1 Billion In Dividends
Bank of America is among Berkshire’s largest holdings – it now represents an astonishing 8.51% of the BRK portfolio, and corresponds to a $29 billion stake in CEO Brian Moynihan’s firm. What that position translates to is an absolutely exorbitant annual dividend income that is just shy of $1 billion annually.
With Bank of America share price down 16.7% for the year, Buffett’s stake has taken a material hit this year, though it hasn’t hurt Berkshire’s performance substantially, it’s still up 11.7% for the year, in line with the market.
According to analysts, though, Bank of America has largely priced in much of the negative news and has as much as 16.5% upside to fair value of $33 per share.
Buffett Has Seen a 7x Gain From 2020 Lows
Another favorite of Buffett, one in which he has continue to build a position and ultimately amassed an enormous stake is Occidental Petroleum.
OXY now represents Buffett’s sixth largest equity holding with a $13 billion stake that pays out a jaw-dropping $867 million in dividend each year.
Not only has Buffett been snapping up shares but management has also via the Board of Directors share repurchase scheme.
The bullish news has continued for OXY with 13 analysts revising their guidance higher for the coming quarter.
Just a few years ago, the future of OXY seemed very much in jeopardy when the share price traded in the low single-digits. But Buffett’s conviction didn’t waver and since then the stock is up by more than 7x.
Now it’s rewarding Buffett’s conviction and paying him a fortune simply for sitting on his shares.
Buffett’s Favorite Stock Pays Berkshire Handsomely
It’s no surprise that Buffett’s favorite stock, Apple, is also one of the most lucrative for Berkshire Hathaway each year.
While a discounted cash flow analysis would peg fair value of Apple down around $161 per share, that hasn’t convinced the Oracle of Omaha to offload any of his holding, which now represents approximately half of his entire equity portfolio.
With such conviction, it’s no surprise that Buffett earns a fortune from Apple’s dividend payments each year, now amounting to $878 million.
Buffett has famously stated that the one time he did offload shares of Apple in the last few years was probably a mistake, and it signals to others that the odds of him doing so again are low.
Given that Apple’s payout ratio is just 15%, it has ample room to increase dividend payments long into the future, and as it does so you can bet Buffett will be lapping up the billions for the foreseeable future.
