Warren Buffett’s 3 Favorite High-Yield Dividend Stocks

What’s something that Warren Buffett likes to take but doesn’t dish out? The answer: dividends.

Buffett’s Berkshire Hathaway owns plenty of stocks that pay dividends. However, Berkshire itself has never initiated a dividend program.

But does Buffett like stocks that offer high dividend yields of 4% or more? He does. Here are Buffett’s three favorite high-yield dividend stocks.

1. Kraft Heinz

Kraft Heinz (KHC) pays a dividend that currently yields nearly 4.1%. You might even argue that the stock is Buffett’s favorite high-yielder. Berkshire owns 26.6% of the food company. That’s a big enough stake for Kraft Heinz to be included in the list of Berkshire’s subsidiaries.

However, Kraft Heinz’s dividend has been one of the company’s few good things for investors. The stock has fallen more than 50% over the past five years. The S&P 500 nearly doubled during the same period.

The story could be changing now, though, with investors shifting from growth stocks into stocks with greater perceived stability. That works to the benefit of Kraft Heinz since the company focuses on consumer staple goods. 

Indeed, so far in 2022 Kraft Heinz stock has risen almost 10%. Meanwhile, the S&P 500 is still in negative territory year to date. And if you look at total return (which includes dividends), Kraft Heinz’s outperformance is even better. 

2. Verizon Communications

There’s a pretty strong case to be made that Verizon Communications (VZ) is Buffett’s second-favorite high-yield dividend stock. The telecom giant ranks No. 8 among Berkshire’s biggest positions.

Verizon has been a favorite for income investors for years — and still is. Its dividend yield currently stands just shy of 5%. The company’s ability to keep the dividends flowing also appears to be solid with a payout ratio below 48%.

The bad news is that Verizon’s stock performance has been lackluster for quite a while. Its share appreciation has lagged well behind the S&P 500 over the past one year, three years, five years, and 10 years.

Don’t write off Verizon’s future growth potential, though. The company could especially have opportunities with its high-speed 5G network in replacing cable operators in the home wi-fi market.

3. Store Capital

Store Capital (STOR) isn’t one of Berkshire’s biggest holdings. But you can bet that Buffett likes its juicy dividend yield of more than 5%.

The COVID-19 pandemic hit Store Capital really hard. That’s understandable since many of the properties owned by the real estate investment trust (REIT) are leased by retailers, restaurants, and movie theaters that were impacted significantly by coronavirus-related lockdowns and other precautions.

However, Store Capital hasn’t had any problems paying its dividend. The company has increased its dividend payout steadily in recent years with compound annual growth of 6.4% since 2015. That’s a better growth rate than many of its peers in the real estate market. 

Rising inflation shouldn’t be a problem for Store Capital, either. Roughly 85% of the company’s leases have automatic escalators tied to the consumer price index.

Originally published on Fool.com

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Keith Speights owns Berkshire Hathaway (B shares). The Motley Fool owns and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Kraft Heinz, STORE Capital, and Verizon Communications and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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