In this article, we discuss Warren Buffett’s returns in 2020 and during the first quarter of 2021. We also reviewed the 10 best dividend stocks to buy according to Warren Buffett.
Billionaire Warren Buffett’s Berkshire Hathaway stock price bounced back strongly this year and topped the broader market index after generating below-average returns last year. “Last year, we met neither goal: Berkshire made no sizable acquisitions and operating earnings fell 9%,” Warren Buffett said in the Q4 investor letter. “The company’s intrinsic per-share value, though, increased by retaining earnings and repurchasing about 5% of its shares,” he added. Despite the poor stock performance, Buffett’s underlying stock portfolio, which was valued at around $269 billion at the end of the fourth quarter, probably did well only because of his large position in Apple.
Best Dividend Stocks to Buy According to Billionaire Warren Buffett
Berkshire earned $26.7 billion in net unrealized gains from its existing stock positions in 2020 as well as $4.5 billion in realized gains. Berkshire saw an $11 billion loss from a write-down in 2020, mostly from aerospace metal components and products manufacturer Precision Castparts. The legendary investor now seeks to acquire more stakes in well-run companies instead of acquiring complete businesses.
“In aggregate, we expect our share of the huge pile of earnings retained by Berkshire’s non-controlled businesses (what others would label our equity portfolio) to eventually deliver us an equal or greater amount of capital gains. Over our 56-year tenure, that expectation has been met,” Buffett said.
Berkshire Hathaway’s stock price, however, outperformed the broader market index in 2021. Better performance from Buffett’s underlying equity stocks has been among the major factors behind year-to-date gains. The Oracle of Omaha has been holding big stakes in companies that are likely to benefit from economic recovery. In addition to share price gains, Berkshire expects almost $3.8 billion in dividends this year. Buffett likes to hold stocks for the long-term with an aim of generating gains through steady share price appreciations and increasing dividends. Berkshire Hathaway’s held a stake in 49 stocks at the end of the latest quarter, 31 of which pay a dividend.
Warren Buffet has made several big changes in his portfolio last year. He sold out big stakes in four US airline companies and exited his positions in several banking stocks. Despite stake sales in these dividend stocks, Berkshire’s nine of the top ten stock positions, which account for 87% of the overall 13F portfolio, offer hefty dividends.
Before discussing Warren Buffett’s dividend stocks, let’s take a brief look at his portfolio adjustments during the fourth quarter. His firm created three new stock positions in Q4, including a $146 billion stake in dividend-paying stock Verizon and a $48 million stake in oil giant Chevron Corporation. Buffett’s Berkshire raised its stake in the most prominent dividend-paying health care stocks Abbvie (NYSE: ABBV) and Merck (NYSE: MRK) during the December quarter. On the other hand, Berkshire closed out positions in 3 stocks and reduced its position in 5 stocks.
While Warren Buffett’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s start reviewing the 10 best dividend stocks to buy according to Warren Buffett. We examine Berkshire’s latest 13F holdings for this analysis.
10. The Bank of New York Mellon Corporation (NYSE: BK)
Berkshire Hathaway held a $72 million stake in The Bank of New York Mellon Corporation (NYSE: BK) at the beginning of this year, accounting for 1.14% of the overall portfolio. Shares of Bank of New York Mellon performed really well since the beginning of this year amid hopes over economic recovery and coronavirus vaccine rollout. The company offers a decent dividend yield of 2.61% despite a massive share price rally.
The Bank of New York Mellon Corporation was in 47 hedge funds’ portfolios at the end of December compared to the all-time high for this statistic of 58. BK has seen a decrease in activity from the world’s largest hedge funds recently. There were 48 hedge funds in our database with BK positions at the end of the third quarter.
9. Chevron Corporation (NYSE: CVX)
Warren Buffett initiated a brand new position in Chevron Corp (NYSE: CVX) during the December quarter, making it the ninth-largest stock holding of his portfolio. The investment in the oil giant appears to be moving in the right direction amid improving fundamentals for the oil price. Chevron’s stock price soared 25% so far this year. The company expects to generate strong cash flows and earnings in 2021, meaning higher dividend returns for shareholders. Chevron currently offers a dividend yield of 4.88% and it has sustained the dividend even when the oil price fell into negative territory last year.
Chevron Corporation was in 50 hedge funds’ portfolios at the end of December. The all-time high for this statistic is 56. CVX has seen an increase in hedge fund interest in recent months. There were 43 hedge funds in our database with CVX positions at the end of the third quarter.
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