You know dividend stocks belong in your portfolio, and you know Warren Buffett has made a fortune with these stock picks - so why not marry those ideas when hunting for profits?
Just looking at Buffett's 13F filing for Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) will show you which dividend stocks the famous investor is holding. The 2012 fourth-quarter filing shows that of 41 holdings, 29 are dividend stocks.
That's no surprise, given how well solid dividend-paying stocks have performed over the long haul.
Studies have shown that since 1930, around 40% of the stock market's total returns came from dividends.
One study by Ned Davis Research is particularly telling, noting that dividend-paying stocks provided returns of more than 10% a year from 1972-2005. Non-dividend-paying stocks, by contrast, posted gains of just 4.1%.
Dividend stocks have also provided a safety net during tough economic times. For example, in 2008, during the financial crisis, S&P 500 dividend stocks fell in value but still outperformed non-dividend stocks by 4.4%, according to RidgeWorth Investments.
Dividend stocks are even more attractive when you consider the payoff from reinvested dividends.
For example, if you had invested $10,000 in S&P 500 30 years ago, the investment would have a $110,740 value today. But if you reinvested dividends, that $10,000 would have grown to $255,600, according to USA Today.
Dividend stocks are also a good bet at a time when the U.S. Federal Reserve seems likely to continue its easy-money policy for the foreseeable future.
Historically, during times that the Fed has tightened monetary policy - meaning there were at least three consecutive interest rate increases and no intervening easing cycles - dividend-paying stocks increased 2.2% vs. 1.8% for non-paying ones, according to Ned Davis Research.
Whenthe Fed has implemented easing monetary policy - at least two consecutive interest rate cuts within 12 months - then dividend-paying stocks yielded 10.0% vs. -2.5% for non-dividend paying stocks. In the remaining times - "neutral" - dividend-paying stocks yielded 12.3% vs. 6.2% for non-dividend paying stocks.
Buffett's Dividend Stocks
Looking at Buffett's Berkshire Hathaway holdings, here are three dividend stocks that stick out as good investments to make now:
- GlaxoSmithKline Plc (NYSE ADR: GSK): Buffett's 13F showed 1.5 million GSK shares in the Berkshire portfolio. The drug company has paid dividends for 15 years and increased them in 13 of those years. Six times, the dividend has risen by more than 7.5%.
This stock currently has a 5.04% dividend yield with a market capitalization of $112.9 billion. In the fourth quarter, the pharmaceutical giant had $39.921 billion in revenue and $7.165 billion in net income.
Glaxo has had a 65.96% return on equity and for 12 trailing months, earnings per share were $2.74. For its last fiscal year, the company paid $2.24 in dividends to its shareholders. Its P/E ratio is 16.47.
- ConocoPhillips (NYSE: COP): Buffett had 24 million shares of COP at the end of 2012. ConocoPhillips has paid dividends since 1934 and has increased them for 12 consecutive years. In the past decade, shareholders have seen an annualized total return of 15.5%.
In 2012, the company split into two independently traded companies, ConocoPhillips and Phillips 66 (NYSE: PSX).
COP has a 4.46% dividend yield with a market capitalization of $74.41 billion. In the fourth quarter, revenue was $62.004 billion with $7.481 billion in net income.
The company's return on equity was 13.09% and for 12 trailing months, earnings per share hit $5.91. Its P/E ratio was 10.01. In its last fiscal year, the company paid $2.64 in dividends to shareholders. This came as the company's stock price dropped 26% during 2012.
- Sanofi SA (NYSE ADR: SNY): This global healthcare company has a 3.5% dividend yield and has paid dividends for the last nine years. Buffett's Berkshire filing showed 4.1 million shares held at the end of 2012.
Sanofi has a market capitalization of $133.54 billion. In the fourth quarter, its net profit was $593 million.
Sanofi has a 9.02% return on equity while earnings per share reached $2.42. In the last fiscal year, the company paid $1.76 dividend to shareholders. Its P/E ratio is 20.94.
Buffett's 13F also showed he held stocks in these companies with dividend yields greater than 3%: The Procter & Gamble Co. (NYSE: PG) - which has increased dividends for 25 consecutive years, General Dynamics Corp. (NYSE: GD), and Kraft Foods Group Inc. (Nasdaq: KRFT).
Want some more high-yielding stock picks? Check this out: 10 Dividend Stocks to Buy Now
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