Known among the best fundamental investors in the world, Buffett turned the 1839-founded textile company, Berkshire, into a holding company back in 1970. But before that, Buffett took the reign of Berkshire as chairman in 1965. Now, Berkshire’s main business and source of capital is insurance, through which it floats (the retained premiums) in a broad portfolio of subsidiaries, equity positions, and other securities.
In the first quarter of 2023, Buffett’s Berkshire sees over a 5-fold jump in net earnings, driven by gains from stocks such as Apple Inc.Net earnings attributable to Berkshire Hathway’s shareholders skyrocketed by 536.27% to $35.5 billion in Q1 of 2023, as compared to earnings of $5.58 billion in Q1 of the previous year. Revenue stood at $85.39 billion in Q1 2023, rising by 20.53% from $70.84 billion in Q1 of last year.
So far in 2023, Berkshire’s share price has gained by 11%, while in a year, the stock has rallied by 25%. In 5 years, the gain is nearly 80%. But in four decades (mid-July-1983), Berkshire has zoomed by a breathtaking 57,220.88% on NYSE. The upside is even more gigantic 4,184,390% since Buffett took charge of Berkshire in 1960s. Currently, Berkshire is among the top 10 most valued companies in the world.
But did you know, Buffet’s love for dividend stocks is also one of the reasons for Berkshire’s phenomenal performance? To be precisely, three stocks account half of Berkshire’s annual dividend income!
As per Motley Fool report, Berkshire Hathaway’s investment portfolio is packed with profitable, time-tested, dividend-paying stocks. In 2023 alone, Buffett and his team should oversee the collection of around $6 billion in dividend income. But almost half of the total dividend income — about $2.75 billion — comes from just three stocks.
These three stocks are:
1. Occidental Petroleum (OXY: NYSE):
As per the report, Occidental shares have given $961.37 million in annual dividend income to Berkshire including preferred stock dividends.
OXY first caught Buffet’s attention in mid-2019, however, the investor exited the energy stock by the end of Q1 of 2020. Nevertheless, Buffet once again took a liking for Occidental in early 2022, around the time when Russia invaded Ukraine and crude oil prices were soaring.
Data from Stockcircle showed that Buffett has purchased a total of 224 million equity shares in Occidental which are worth $13.1 billion as of now. This also accounts for 3.75% of their equity portfolio (6th largest holding). Overall, Buffet owns 25.57% of the outstanding Occidental Petroleum stock.
The latest buying in Occidental by his Berkshire would be 2.14 million shares between June 26 to 28th. Overall, in Q2 of 2023, Berkshire bought 12.46 million shares of Occidental.
It added that the stake cost Buffet $12.1 billion, netting an upside of 8.8% up till now.
Also, Berkshire holds around $10 billion worth of Occidental Petroleum preferred stock that is carrying a dividend of 8% along with another $5 billion of Occidental shares warrants. Buffet’s company picked up Occidental’s preferred stock and obtained warrants back in 2019 — which financed Occidental’s purchase of Anadarko Petroleum Corp.
According to Nasdaq, OXY’s dividend yield is around 1.23% with a P/E ratio of 6.71x. The annual dividend is around $0.72 per share.
But it needs to be noted that OXY has been in red for quite some time now. Year-to-date, the stock has dipped by 4% on New York Stock Exchange, while the yearly drop is around 3.40%. In a 5-year span, the stock has plunged nearly 30%. Notably, in the long term, OXY shares have skyrocketed by over 401% since mid-1983.
In its first quarter of 2023 (January to March), OXY registered $983 million in net income attributable to common stockholders, while the adjusted net income was $1.1 billion. Its oil and gas pre-tax income for the first quarter of 2023 was $1.6 billion. Also, the total average global production of 1,220 thousand barrels of oil equivalent per day (Mboed) for the first quarter exceeded the midpoint of guidance by 40 Mboed.
In Q1, the company paid a preferred stock dividend of $280 million, while the cash dividend paid is to the tune of $320 million.
2. Bank of America (BAC:NYSE)
Berkshire netted an annual dividend income of $908.90 million from more than 1 billion shares of Bank of America or popularly known as ‘BofA’.
As of now, the ‘Oracle of Omaha’ holds 13.08% of the outstanding Bank Of America stock. He first started investing in this bank in the second quarter of 2007, and since then his shareholding has increased to $29.5 billion — which is 8.41% of the entire equity portfolio, making it the second largest holding.
So far, he has recorded gains of about 10% on his investment cost of about $26.7 billion.
The stock has a dividend yield of 3.08% with an annual dividend of $0.88. The stock’s P/E ratio of 8.57x.
Year-to-date, BofA’s shares have dropped by nearly 15%, while in a year, the fall is a little over 9%. Its 5-year performance is also broadly flat. However, the stock has jumped by nearly 757% since mid-1983 till date.
During Q1 of 2023, BofA’s net income jumped by 15% YoY to o $8.2 billion, while revenue, net of interest expense, climbed by 27% YoY to $26.3 billion. Net interest income (NII) was up by 25% YoY to $14.4 billion driven by benefits from higher interest rates and solid loan growth.
Bofa in Q1 said that a common equity tier 1 (CET1) ratio of 11.4% (Standardized) increased 14 bps from Q4-22; returned $4 billion to shareholders through common stock dividends and share repurchases.
Apple (AAPL:NASDAQ):
Berkshire netted an annual dividend income of $878.94 million from Apple shares. The iPhone maker is the largest company with a market cap of $2.999 trillion as of now.
Buffett found love for Apple shares during the first quarter of 2016. He currently holds 916 million Apple shares which are worth a massive $175 billion as of now, as per Stockcircle. This would account for up to 49.80% of Buffet’s entire portfolio — thereby making Apple his biggest holding.
As of now, Buffett holds 5.79% of the outstanding Apple stock.
It is fair to say that Apple has not disappointed Buffet. His investment in Apple shares cost around $36.3 billion, and taking into consideration the latest value of his holding in Apple shares — the investor has recorded an upside of 381% so far.
The Steve Jobs-founded company has made significant gains in 2023. Year-to-date, the stock has jumped by at least 52.5%. In 5 years, the stock rallied by a whopping 299%.
However, since mid-1983 to date, Apple shares have given a mind-boggling 95,240% return to its investors. No wonder, Buffett had to have a piece of Apple!
Apple in its fiscal 2023 second quarter ended April 1, 2023, reported a revenue of 94.8 billion, down 3% year over year, and quarterly earnings per diluted share of $1.52, unchanged year over year. On the contrary, the tech giant generated a strong operating cash flow of $28.6 billion while returning over $23 billion to shareholders during the quarter.
As of April 1, 2023, the company paid dividends and dividend equivalents to the tune of $7.418 billion.
In May this year, Apple paid a cash dividend of $0.24 per share of the company’s common stock, an increase of 4%.
Apple’s current dividend yield is 0.5% with an annual dividend of $0.96, as per Nasdaq data. The company’s P/E ratio is 32.37x.
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Updated: 09 Jul 2023, 03:49 PM IST