NEW YORK (TheStreet) -- Warren Buffett, one of the greatest investors of all time, is 84 years old, yet his stock market wisdom is in as high demand as ever. For instance, nearly 40,000 people attended the latest Berkshire Hathaway annual shareholders' meeting.
Buffett invests in businesses with durable competitive advantages that can compound his money year after year. This article examines the five Buffett-owned dividend stocks with the highest yields. All five have dividend yields over 3% and are all stocks that have passed Buffett's strict quality requirements. The stocks in this article could improve your dividend portfolio as they combine Buffett's safety-first approach with high yields for current income.
The stocks are ranked in order of yield, from lowest to highest -- click through to the end to see which of Buffett's holdings has the highest dividend yield.
5. Sanofi (SNY)
Sanofi is a global pharmaceutical company. The company's stock currently has a 3.2% dividend yield. Sanofi has consistently rewarded shareholders with steady or rising dividend payments every year for 21 consecutive years (adjusting for changes in the dollars-to-euros conversion rate). The company is one of the largest pharmaceutical companies in the world based on its market cap of over $130 billion.
Sanofi is headquartered in Paris. In 2014, The company generated 82% of its revenue from pharmaceuticals, 12% from vaccines, and 6% from animal healthcare products. Sanofi's global reach gives it heavy exposure to emerging markets. In 2014, 36% of sales came from emerging markets.
Buffett requires a strong competitive advantage to invest in a business. Sanofi's excellent research and development department is the source of its competitive advantage. The company's ability to continuously develop new and innovative treatments drives revenue.
Sanofi's rate of new product development is increasing. From 2007 to 2013, the company launched 10 products. From 2014 to 2020, Sanofi is expecting 18 product launches. New product launches will drive continued growth for Sanofi.
Sanofi is a shareholder-friendly company. It has recently begun to focus on share repurchases. Sanofi has reduced its net share count by about 1% in the last two years, with most of that coming last year. Sanofi will likely continue to increase share repurchases as it continues to generate strong cash flows from its pharmaceutical sales.
Sanofi has a forward-price-to-earnings ratio of 16.1 which is in line with other large pharmaceutical manufacturers. The company appears to be trading around fair value at this time.
4. General Electric (GE)
General Electric is one of the world's largest conglomerates. The company has a market cap over $275 billion. It was founded in 1890 by famed inventor Thomas Edison.
General Electric's share price still hasn't recovered to highs set before the Great Recession. The company is now embarking on a very shareholder-friendly growth plan. The plan centers on divesting non-core assets and returning much of this cash to shareholders.
General Electric is committed to divesting its GE Capital business and return somewhere around $90 billion to shareholders through dividends and share repurchases. This is about 30% of the company's value at current prices.
General Electric already spun-off its retail finance and credit card division. The division was renamed Synchrony Financial (SYF) and is publicly traded. In addition, there are rumors that General Electric will soon sell its commercial lending portfolio to Wells Fargo (WFC) (Buffett's largest holding) for up to $74 billion. If this transaction does occur, General Electric will have a tremendous amount of cash to return to shareholders.
The continuing divestiture of GE Capital is positive news for shareholders. General Electric is realigning its business to focus on what it does best, namely, developing and manufacturing industrial and consumer products.
General Electric is currently trading at a reasonable forward-price-to-earnings ratio of 17.6. The company is not undervalued and is likely trading around fair value. General Electric stock has a 3.4% dividend yield. The company's combination of streamlining its business through divestitures and its high dividend yield should appeal to income oriented investors looking for capital appreciation as well.
3. General Motors (GM)
Investors still remember General Motors' spectacular failure. The company declared chapter 11 bankruptcy in 2009 at the height of the Great Recession.
General Motors deleveraged itself and underwent significant restructuring. In 2010, the company went public again. General Motors has remained profitable ever since.
General Motors is the largest automobile manufacturer in the United States. The company has a 17% market share in the massive United States car and truck market. General Motors has seen excellent international growth. Around 40% of the company's revenue is now generated overseas.
Buffett would not invest in General Motors if it was the same company from 2009. General Motors has strong earnings growth prospects ahead from margin increases. The company is wisely focusing on cost control. General Motors is currently restructuring operations in Russia, Thailand, and Indonesia. Cost savings from these restructurings should provide a small boost to earnings as well in the coming years.
General Motors is seeing real success in China. China sales grew 12.1% in fiscal 2014. China's economy is expected to slow somewhat in fiscal 2015. This could impact growth numbers for General Motors in 2015. With that said, General Motors long-term growth prospects in China remain bright.
Buffett is known to seek value in his stocks. General Motors certainly qualifies. The company is trading for a forward-price-to-earnings ratio of under 8. The company looks very cheap at current prices. Investors who remember the company's bankruptcy six years ago still appear to be fearful of the company. In addition to its low price-to-earnings ratio, General Motors has a high dividend yield of 3.4%.
General Motors' high dividend yield and low forward-price-to-earnings ratio should appeal to value-oriented investors. General Motors has a payout ratio of around 40%; the company will likely increase dividend payments in excess of earnings-per-share growth over the next several years.
2. National Oilwell Varco (NOV)
National Oilwell Varco's stock price has suffered over the last six months due to low oil prices. The company has lost 24% of its value in this time. Price declines create opportunities for investors to pick up shares in high quality business for under fair value.
As Buffett has been known to say, "The best thing that happens to us is when a great company gets into temporary trouble...We want to buy them when they're on the operating table."
National Oilwell Varco may not be on the operating table just yet, but low oil prices have driven down the company's value. National Oilwell Varco now trades at a price-to-earnings ratio of just 10.3. The company is an industry leader as the largest supplier of equipment for oil and gas drilling.
Low oil prices will have impact on National Oilwell Varco's earnings in fiscal 2015. The company's customers, oil exploration and drilling companies like Exxon Mobil (XOM), are slashing their capital expenditure budgets for 2015. This means the company's customers will purchase less rig and drilling systems and equipment.
Fortunately, National Oilwell Varco's management is approaching falling share prices in the best possible way. The company's management plans to use the its solid balance sheet to repurchase shares at depressed prices. Share repurchases done below fair value are equivalent to buying $1 for $0.80 -- or less depending on how undervalued the company is. Share repurchases at depressed stock prices adds significant value for long-term shareholders.
National Oilwell Varco has a very conservative balance sheet. The company has $3.146 billion in total debt and $4.091 billion in cash on hand. Very little of the company's debt is due in 2015. With its cash pile, National Oilwell Varco has plenty of funds to repurchase shares.
Investors who can tolerate some risk could do well to invest in National Oilwell Varco. The company is trading at a bargain price-to-earnings ratio at this time. In addition, the company has a substantial dividend yield of 3.5%. Investors get "paid to wait" to hold National Oilwell Varco stock until the company rebounds when oil prices rise.
1. Verizon (VZ)
Verizon is the highest-yielding stock in Warren Buffett's portfolio. The company has an exceptionally high dividend yield of 4.4%. Verizon also has a long history of paying dividends. The company has paid steady or increasing dividends for 31 consecutive years.
Verizon is the leader in wireless in the United States with control of 34% of the wireless market. Verizon shares this business largely with three other firms: AT&T (T), T-Mobile (TMUS), and Sprint (S) account for 90% of the wireless industry in the United States.
High barriers to entry have resulted in these four companies dominating the industry. Verizon and AT&T both spent over $10 billion on the latest wireless spectrum auction. This level of spending is virtually impossible for a new entrant to match. Additionally, all four players in the wireless industry have built up considerable brand equity and recognition. Verizon's market leadership in the wireless industry protects the company from much of the effects of a truly competitive market. This is not good for customers, but excellent for shareholders.
Verizon is focusing on returning value to shareholders. The company recently announced plans to sell its wireline assets in California, Florida, and Texas to Frontier Communications (FTR) for $10.54 billion. The move helps Verizon reduce its exposure to its slower-growing wireline segment. Verizon also agreed to lease the rights to over 11,300 of its company-owned towers to American Tower Corporation (AMT). In the deal, Verizon will also sell American Tower Corporation 130 towers for an upfront payment of $5 billion. Verizon is using $5 billion of this cash to repurchase shares. This comes to a 4% reduction at current prices.
Verizon is seeing solid growth in its wireless segment. The company is benefiting from the continued adoption of smart phones and tablets. More connected consumers using more data will continue to drive Verizon's results.
Investors in Verizon should see double-digit total returns going forward. Earnings-per-share are expected to grow by 7% to 8% a year. This growth combined with the company's 4.4% dividend yield gives investors total return expectations of 11.4% to 12.4% a year going forward. Verizon is currently trading at a forward price-to-earnings ratio of just 12.6. The company's combination of a long dividend history, growth, high yield, and strong competitive advantage give the stock a high rank using The 8 Rules of Dividend Investing.