Warren Buffett's Berkshire Hathaway has captured the spotlight in recent weeks after reporting a substantial cut in its largest public equity holding, Apple. The move followed a 12.9% cut to Berkshire's Apple stake earlier this year.
By selling a large portion of its Apple stock and not chasing hot growth stocks, Berkshire Hathaway is sending a warning to investors that Buffett views many stocks as overvalued. Folks who feel the same way might want to consider some of the reasonably priced dividend payers in Berkshire's portfolio, like Coca-Cola (NYSE: KO), Bank of America (NYSE: BAC), Chevron (NYSE: CVX), and Occidental Petroleum (NYSE: OXY) -- which allow them to participate in the stock market without paying up for other high-flying alternatives.
Investing $1,000 into each stock should generate at least $100 in passive income per year. Here's why all four dividend stocks are worth buying now.
Coke is kicking into a new gear
Coca-Cola is having a great year, with the stock hovering around an all-time high and up 17% year to date at recent prices, which is better than the S&P 500 or Nasdaq Composite. Even with the big gain, the stock has still underperformed both benchmarks by a wide margin over the last five years. But there's reason to believe the company is turning things around.
Coke has made notable acquisitions in recent years, not all of which have been resounding successes (I'm looking at you, Bodyarmor). If a beverage line isn't received well, it can lead to inflated costs and lower margins. But when Coke is at its best, it can take a brand to the next level with its global supply chain and distribution network. Topo Chico is an excellent example of the effectiveness of this model.
KO Revenue (TTM) data by YCharts
If you look at a 20-year chart of Coke's sales and operating margin, you'll see record revenue in the early 2010s paired with low margins, followed by high margins but lower sales in recent years. The company is finally returning to sales growth and keeping its margins high, which is particularly impressive considering consumers have pulled back on discretionary spending.
With a 2.8% dividend yield and a bright future, Coke is a safe dividend stock to buy now.
A balanced bank stock
Higher interest rates can be a boon for banks because they make lending more profitable and can boost interest income. But they can also slow economic growth, affecting other business units for diversified banks like Bank of America.
As with Apple, Berkshire has been trimming its Bank of America position, but it remains one of its largest holdings.
While JPMorgan Chase is arguably a better-operated bank than Bank of America, it has become an expensive stock relative to its peers. At recent prices, Bank of America has a lower price-to-book value at 1.15, which is just a bit below Wells Fargo's 1.20 and significantly below JPMorgan's 1.94. At 2.6%, It also has a higher yield than JPMorgan's 2.1%.
Since it slashed its quarterly dividend to just $0.01 after the financial crisis, Bank of America has worked hard to restore confidence in the payout, making some sizable raises in recent years
All told, Bank of America is a solid choice for passive-income investors looking for a reliable bank stock at a fair price.
A diversified oil major
Berkshire first began building up a stake in Chevron in late 2020 and then significantly upped the position in 2022, with its share count peaking in the third quarter of 2022. Berkshire bought more Chevron stock at the end of last year. As of the most recent filing, it sits as its fifth-largest holding behind Coca-Cola.
Despite fairly stable and strong oil prices, Chevron is hovering around a 52-week low. Part of the concern is the status of its $53 billion deal to acquire Hess, which is facing some challenges.
But unlike some acquisitions that can make or break an investment thesis, Chevron can do just fine even if the deal with Hess falls through.
Despite the volatility of oil and gas prices, the company has been a remarkably reliable dividend stock with 37 consecutive years of increases. Chevron has a rock-solid balance sheet and a yield of 4.4%, making it an excellent choice for boosting your passive income.
A risk-taking oil company
Unlike Chevron, which is an integrated oil major that operates across different parts of the oil and gas value chain, Occidental Petroleum (commonly known as Oxy) is a pure-play exploration and production (E&P) company.
E&Ps can be especially sensitive to oil prices. And Oxy compounds that inherent risk by leveraging up its balance sheet when it fancies an enticing acquisition. It did so when it outbid Chevron to buy Anadarko Petroleum in 2019 (which severely strained its balance sheet during the pandemic). And it is doing so again with its deal to buy CrownRock for $12 billion.
Despite its risk-tolerant approach, Oxy stands out as a buy for investors who are confident that oil and gas prices can remain at decent levels. It is delivering excellent results and investing in long-term growth opportunities.
Oxy has only a 1.5% dividend yield, but it's close to a 52-week low and looks too cheap given its earnings growth. Chevron is arguably the best buy, especially if you prefer a diversified oil and gas stock. But investors are getting an excellent opportunity to pick up shares of Berkshire's sixth-largest public equity holding.
Four choices to consider now
Berkshire Hathaway prefers to repurchase its own stock rather than pay a dividend, believing it is a better use of capital. But there's a reason Buffett and his team have held reliable dividend-paying companies like Coke and American Express for over 30 years.
Top dividend stocks provide income without the need to sell stock, which can be especially important when the market is selling off. The best dividend-paying companies use their payout as merely one aspect of the investment thesis by growing the core business through higher earnings -- which in turn can lead to a higher market cap and capital gains.
Coke, Bank of America, Chevron, and Occidental Petroleum are four companies that fit this "top dividend stock" mold -- making them excellent choices to consider now.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Chevron, and JPMorgan Chase. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
All It Takes Is $1,000 Invested in Coca-Cola and Each of These 3 Warren Buffett Dividend Stocks to Generate Over $100 in Passive Income Per Year was originally published by The Motley Fool