Warren Buffett is a big fan of dividend stocks. Even though his own Berkshire Hathaway (BRK.A -0.31%) (BRK.B -0.39%) has never paid a dividend, Buffett wrote to shareholders in 2013 that "we relish the dividends we receive from most of the stocks that Berkshire owns."
Several stocks owned by Berkshire provide dividends that Buffett can relish more than others. The five highest-yielding Buffett stocks are: The Kraft Heinz Company (KHC -1.29%), General Motors (GM -1.99%), Store Capital (STOR), Wells Fargo & Company (WFC -0.19%), and United Parcel Services (UPS 0.56%). Here's what you need to know about these top dividend stocks in Berkshire Hathaway's portfolio.
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1. Kraft Heinz
Kraft Heinz's forward dividend yield of 4.86% ranks it at the top of the list. The yield was even higher not long ago, but the big food company slashed its dividend by 36% in February.
Any time a company cuts its dividend, it raises concerns for investors. Unfortunately, the concerns are warranted with Kraft Heinz. The company performed well below expectations in 2018. Kraft Heinz recorded a big impairment charge reflecting a less rosy outlook for its Kraft natural cheese business, its Oscar Mayer cold cuts business, and its Canada retail business.
Could Kraft Heinz's dividend face more trouble? CFO David Knopf stated in the company's fourth-quarter conference call that Kraft Heinz has now established "a base dividend" that should be able to grow as earnings increase over time. It remains to be seen, though, whether or not the company will be able to grow earnings over the next few years.
2. General Motors
General Motors takes the No. 2 spot with a dividend yield of 4.15%. The auto giant's yield is also somewhat lower than it was in late 2018. But it's because of a good reason: GM's share price has moved higher.
This year should be a pretty good one for GM. The company upped its full-year 2019 earnings guidance in part due to anticipated strong sales for its new full-size pickup trucks. Over the long run, trucks and SUVs are likely to remain popular with customers.
That's great news for GM since its leadership in these types of vehicles is a major competitive advantage for the company. And it means that the automaker should be able to keep the nice dividends flowing and continue to rank among Warren Buffett's highest-yielding dividend stocks for a long time to come.
Check out the latest earnings call transcripts for Wells Fargo and other companies we cover.
3. Store Capital
It's probably not surprising that the only real estate investment trust (REIT) owned by Berkshire would make the list of Buffett's top high-yield stocks. As a REIT, Store Capital must return at least 90% of its taxable income to shareholders in the form of dividends. Its yield currently stands at an attractive 3.89%.
Store Capital focuses on leasing properties to retailers that aren't too susceptible to e-commerce competition. It's been very successful, delivering strong double-digit percentage revenue and earnings growth in 2018.
These sizzling growth rates are likely to taper off somewhat in the future. However, Store Capital's business model should remain solid, generating strong cash flow the company can use to boost its dividends in the future.
4. Wells Fargo
Warren Buffett really likes bank stocks. The highest-yielding bank stock in his Berkshire portfolio is Wells Fargo, which pays a dividend that yields 3.69%.
Wells Fargo has certainly faced its share of problems over the last three years. A major scandal involving the company's sales practices took a toll on Wells Fargo stock and led to regulators limiting the company from increasing its assets. That, in turn, restricted Wells Fargo's ability to grow.
But Warren Buffett has stuck by Wells Fargo through thick and thin. The big bank's dividend yield appears to be on solid ground. This yield, combined with the stock's relatively cheap valuation, could keep Wells Fargo on the list of Buffett's favorite stocks.
5. United Parcel Services
United Parcel Services rounds out the top five highest-yielding Warren Buffett stocks with a dividend yield of 3.52%. As was the case with GM, the package delivery giant's dividend yield has declined somewhat in 2019 as a result of its share price climbing.
Although UPS has increased its dividend by 43% over the last five years, don't count on huge dividend hikes from the company over the next few years. UPS is ramping up its capital expenditures. This added spending should help the company improve its capabilities of handling heavy volume during holiday seasons, but it could also place a constraint on how much UPS pays out with its dividend programs.
The company's dividends should keep on flowing each quarter. However, UPS faces the prospects of slower growth in the future as Amazon.com expands its internal fleet of cargo planes.
Best of the group
Wells Fargo would arguably be Warren Buffett's pick as the best of these five high-yielding stocks. Berkshire has more money invested in the bank stock than it does in any of the others on this list. However, my vote for best in the group would go instead to Store Capital.
I like Store Capital's long-term growth prospects. I really like its dividend. The stock is expensive, with shares trading at 34 times expected earnings. However, if a value investor like Buffett doesn't mind owning Store Capital, I'm not too worried about the stock's premium price.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
