Warren Buffett’s Best Dividend Stocks
May 16, 2018
There’s more to Berkshire Hathaway Inc. (NYSE:BRK.B, NYSE:BRK.A) than just its stock. Berkshire owns a collection of operating companies and plenty of financial assets ranging from bonds to synthetic securities and, of course, lots of cash.
But it also buys stocks just like any individual investor or fund manager might do. And thanks to a rule of the U.S. Securities and Exchange Commission (SEC), anyone can look up what Warren Buffett and his minions have bought in a prior quarter.
These can be found in Berkshire Hathaway’s SEC form 13F, which gives a trailing look back at where some of the company’s cash has gone. Form 13F is for any investment management company with more than $100 million in discretionary investments.
When it comes to Berkshire Hathaway, not all of Warren Buffett’s picks have been panning out. This is particularly the case with consumer stocks, including Kraft Heinz Co (NYSE:KHC) as traditional brands have disappointed with changing consumer tastes.
But there are a few stocks that represent some interesting plays that are worth a look … and even pay some dividends as well.
SYF Stock Is Looking Good Among Dividend Stocks
Let’s start with Synchrony Financial (NYSE:SYF). This is a Connecticut-based consumer financial company that offers credit cards and consumer financing as well as taking FDIC-insured deposits. Its lending is primarily done through branded credit cards and branded store credit. Its partners include Walmart Inc (NYSE:WMT), Lowe’s Companies, Inc. (NYSE:LOW) and even Amazon.com, Inc. (NASDAQ:AMZN).
These provide a national reach throughout the U.S. and even extend into the Canadian consumer finance market. This matters, as U.S. consumer spending continues to climb with the most recent reported month of April showing retail spending up 4.7% year over year. And overall consumer credit is also advancing by 4.98%. This is helping to drive earning assets of the company by some 6.2% and revenue gains of 10.4% over the trailing year.
In addition, thanks to eased regulatory constraints for banks and financials, the company should continue to see lower costs for extending and maintaining credit. It already has an impressive efficiency ratio of 43.7% and that should continue to improve. And that means higher returns that many of its banking peers envy with a return on assets more than double the acceptable rate for banks at 2.2% and a return on equity running at nearly half again better than many of its peers at 14.5%.
And then there is the tax cut legislation that is driving more cash to the bottom line, like for all banks and financials in the U.S. The dividend yield on SYF stock is 1.8%.
MON Stock Can Grow
Next up is Monsanto Company (NYSE:MON). The Missouri-based biotechnology agriculture company is one of the global leaders in engineered seeds that solve for many environmental threats to farm production of numerous crops. In addition, it also provides added technology products for monitoring plantings, irrigation and harvesting.
The company is attractive on its own at a current price of $125.41. But it is expected to gain approval from regulators to be acquired by Germany’s Bayer AG (ADR) (OTCMKTS:BAYRY) at $128 a share, providing a bit of a boost near term.
The market for GMO seeds continues to soar with the majority of major U.S. grain and soy crops utilizing the technologies.
Monsanto pays a reasonable dividend for a technology stock at 1.7%. But until the closing of the transaction with Bayer, which will be in cash, you could acquire Bayer’s shares, which pay a better dividend of 2.8%. The combined companies would further dominate the GMO and agricultural tech market around the globe.
Fill Up on PSX Stock
And the last of these interesting dividend stocks is Phillips 66 (NYSE:PSX). This Texas-based refiner with additional businesses in chemical manufacturing and power generation is among the strong-performing refinery market leaders in the U.S. Demand for domestic refined products is on the ascent, and that is also joined by export demand from abroad.
Revenues continue to advance by a trailing-12-month rate of 26%. And while operating margins are narrow, as for many in the segment, at 1.9%, it’s all about the volume. Return on the expensive and hard-to-duplicate refinery assets is at 9.8% and the return on equity is nice and fat at 23%.
Interestingly, Phillips 66 shares are cheap, as they trade at a discount to trailing revenues by some 40%. The dividend was just upped to 80 cents a share, providing a yield of 2.7%.
Neil George is the editor for Profitable Investing and does not have any current holdings in the securities mentioned above.