It’s no secret Warren Buffett loves companies that pay dividends. While he refuses to allow Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) to pay any to shareholders, he enjoys collecting those checks from the businesses he owns.
Buffett believes he can deliver superior returns for his shareholders if he allows them to make decisions for themselves. He’s probably right. Since becoming chairman of Berkshire Hathaway in 1964, he has generated overall returns of 4,384,748% by the end of 2023. In contrast, the S&P 500 achieved over 31,000% returns. That means Buffett’s compounded annual growth rate (CAGR) of 19.8% beat the benchmark index by nearly two-to-one. Most investors will have a tough time doing that in one year. Buffett’s done it for 60 years!
The Oracle of Omaha collected around $6 billion in dividends last year. That’s without doing anything but holding onto the shares of companies he already owns. But that’s only from his publicly traded stocks. In Buffett’s 2020 Berkshire Hathaway shareholder letter, he revealed that his wholly owned railroad, BNSF, paid him $41.8 billion in dividends since it was acquired in 2010.
So, which are Buffett’s best dividend stocks? Based on the amount collected, Bank of America (NYSE:BAC) will generate nearly $1 billion in dividends this year. Apple (NASDAQ:AAPL) will deliver another $860 million. Yet I’m looking for the top stocks, so I wanted dividends that yielded at least twice the average yield of the S&P 500’s 1.4% yield. BAC stock just missed the cut at 2.7%, while AAPL pays a miserly 0.5%.
The following three Warren Buffett dividend stocks yield over 3% each and, in return, will mail Oracle $2.1 billion in checks this year.
Kraft Heinz (KHC)
Packaged food stock Kraft Heinz (NYSE:KHC) is the seventh largest holding in Berkshire Hathaway. Buffett owns 325.6 million shares worth $11.8 billion. With a yield of 4.4%, it is the highest-yielding stock in the portfolio, which is set to deliver $520.5 million in dividends.
That’s not too shabby for a stock Buffett to consider a mistake. His holdings are the result of Buffett helping private equity firm 3G Capital Management to take control of H.J. Heinz in 2013 and then helping engineer the ketchup maker’s acquisition of Kraft Foods two years later. While Buffett believes the Heinz deal was good, he feels he “overpaid” for Kraft.
Since acquiring Heinz, Buffett’s total return on the stock has been less than 18% compared to a 344% return by the S&P 500. The company owns a portfolio of top name brands like Kraft and Heinz and Jell-O, Kool-Aid and Maxwell House coffee. Half a million dollars a year in dividends can soften the blow of paltry returns and Buffett says he will never sell KHC stock.
Coca-Cola (KO)
It’s likely no surprise Coca-Cola (NYSE:KO) is on the list since it’s been known for years as a cash-producing machine. Buffett famously bought the beverage giant’s stock after Coca-Cola sent him a can of Cherry Coke in the 1980s. He ended up selling out of his Pepsico (NASDAQ:PEP) holdings and today owns 400 million shares of Coke worth $23.5 billion. That’s a 9.3% share of the company, accounting for over 6% of Berkshire Hathaway.
KO stock yields 3.3%, so Buffett will receive dividend checks this year amounting to $775.6 million from the soda king. Of course, Coca-Cola is much more than just a soda jerk today; it has a broad swath of the beverage market, including water, tea, juices and energy drinks.
Although Buffett doesn’t really buy and sell the company’s shares anymore, preferring to just hold for the long term, Coke tends to be an all-weather stock. Cans of soda and other beverages are indulgences consumers will enjoy regardless of economic conditions. This is why it continues to thrive, and Buffett will likely never sell his holdings.
Chevron (CVX)
The brightest dividend star in Berkshire Hathaway has to be oil and gas giant Chevron (NYSE:CVX). Buffett owns over 126 million shares valued at $20.5 billion. That puts the oil stock fifth in the portfolio.
Buffett was selling shares of the energy company last year as he scooped up more shares of Occidental Petroleum (NYSE:OXY) because of its position in the Permian basin. But in last year’s fourth quarter, he became a buyer again. Chevron is also a giant in the oil-rich Permian and its pending acquisition of Hess (NYSE:HES) will give it access to the lucrative Guyana market (that is, if Exxon Mobil (NYSE:XOM) doesn’t muck it up).
With CVX stock yielding 4% a year, Buffett stands to receive $822 million in dividends this year. This will be an income stream that goes on for years and years as fossil fuel demand continues to grow.
On the date of publication, Rich Duprey held a LONG position in KO, XOM and CVX stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.