While the top companies owned by CEO Warren Buffett’s Berkshire Hathaway operate in different industries, they have one key thing in common. They each return cash to shareholders through dividend payments. Take a look at the top five stock holdings in Berkshire’s equity portfolio and the yields on each company’s shares.
|Company||Portfolio Percentage||Dividend Yield|
|Bank of America||8.5%||2.4%|
As the table above shows, Chevron is the top dividend payer among Buffett’s company’s five largest holdings — with a yield of roughly 3.9% based on its stock price as of this writing. That’s a solid yield, but other companies in Berkshire’s portfolio offer dividend payouts far above that level.
If you’re on the hunt for stocks that can help you build powerful passive income streams, read on for a look at two ultra-high-yield dividend stocks owned by Buffett’s company that are worth buying this month.
This telecom stock is a cash machine
Verizon Communications (VZ -3.19%) boasts one of the best dividend profiles in the telecommunications industry. With a dividend yield of 7.3%, the telecom giant offers the best dividend yield of any major U.S. wireless services provider. Verizon has also increased its payout on an annual basis for 16 years running, and there’s a good chance the company will extend that streak with another payout hike this fall.
With free cash flow (FCF) of $14.1 billion last year, Verizon handily covered the $10.8 billion in cash it returned to investors through dividends, and it looks like FCF will climb significantly this year. In the first quarter, the telecom company recorded FCF of $2.8 billion, a huge jump from the $1 billion in free cash flow it posted in the prior year. The company was able to massively boost its cash generation even though revenue fell in the quarter.
Verizon’s sales fell 1.9% year over year in Q1 to land at $32.9 billion, with the decline largely stemming from continued declines for the wireless business and the company ceasing to offer 3G services. Consumer segment sales fell approximately 1.7% year over year to roughly $24.9 billion, while business segment revenue dipped roughly 2.8% to $7.5 billion.
But while revenue declined in the quarter, Verizon actually posted strong postpaid wireless and broadband customer additions, and free cash flow is improving thanks to efficiency initiatives and the reduced need to spend on 5G infrastructure. Trading at just 7.6 times this year’s expected earnings and sporting a great dividend profile, Verizon looks like a great buy for income-seeking investors.
A specialized high-yield energy play
Vitesse Energy (VTS 4.82%) is a relatively small company in the oil and gas industry that was spun off from Jefferies Financial Group earlier this year. As often happens, the new standalone company saw an uptick in investor interest after it was disclosed that Berkshire Hathaway had initiated a position in its stock in the first quarter.
But Vitesse Energy is still a relatively little-known company, and its stock pays a huge dividend. Based on its share price as of this writing, Vitesse offers a dividend yield of roughly 8.7%.
With Chevron standing as Berkshire’s fifth-largest holding and Occidental Petroleum coming in as the investment conglomerate’s sixth-biggest stock position, it’s clear that Buffett is bullish on the future of the energy sector. But Vitesse stands out as a different kind of play in the space.
Rather than extracting, refining, or transporting oil, the company acquires and invests in wells. Even with potential fluctuations in the price of oil, this approach allows Vitesse to minimize its exposure to volatility, generate reliable free cash flow, and return ample cash to shareholders.
At the end of the first quarter, Vitesse owned an interest in 276 wells that were either already in the drilling phase or near completion to be ready for drilling. In addition to those assets, it also owned an interest in 408 other locations that had been permitted for well development.
Even after getting valuation boosts from its first-quarter report and news that Berkshire had invested in the company, Vitesse remains attractively valued. Trading at roughly 10 times this year’s expected earnings, the stock looks like a smart buy for dividend-focused investors seeking exposure to the energy sector.
American Express is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Jefferies Financial Group, and Vitesse Energy. The Motley Fool recommends Chevron and Verizon Communications and recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.