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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: