Many income investors own ultra-high-yield dividend stocks. You probably wouldn’t expect Warren Buffett to be in that group. After all, he doesn’t exactly need the income these stocks generate.
However, the Oracle of Omaha is actually in that group. Believe it or not, Buffett owns three dividend stocks with yields of over 8%.
1. Ares Capital
You won’t find Ares Capital (ARCC -0.05%) included in Berkshire Hathaway‘s (BRK.A) (BRK.B) regulatory filings that disclose its holdings. Buffett still owns shares of the business development company (BDC), though. Ares Capital is one of several stocks held by New England Asset Management, a subsidiary of Berkshire Hathaway.
Ares Capital ranks as Buffett’s highest-yielding dividend stock of all. Its dividend yield currently tops 10%. This attractive dividend isn’t a fluke. Ares has paid stable or growing dividends every quarter for more than 13 years.
Is Ares Capital an ultra-high-yield dividend stock that might appeal to other investors? It could be for aggressive income investors. I expect the company will be able to continue paying its dividend, at least at current levels. Its business prospects should be good as businesses look for alternative financing solutions with credit tightening.
The company and stock also have great track records. Ares Capital is the biggest publicly traded BDC, with a portfolio that’s more diversified than its peers. Its stock has trounced the S&P 500 and most other BDCs over the long term as well.
2. Golub Capital
Golub Capital (GBDC 0.53%) shares a lot in common with Ares Capital: It’s a BDC. It’s not owned directly by Berkshire Hathaway but is in the portfolio of Berkshire subsidiary New England Asset Management.
The stock also pays an exceptionally juicy dividend. Golub Capital’s dividend yield currently stands only a hair under 10%. Its five-year average yield is over 8%, while the average yield since the BDC’s IPO in 2010 is nearly 8%.
Is Golub Capital as good of a pick as Ares Capital? In some respects, no. Its dividend yield is a little lower. The stock hasn’t performed as impressively over the long term, although it has beaten several key equity and fixed-income indexes.
However, Golub Capital offers one big advantage over Ares Capital: It’s available at a discount. Golub’s share price currently trades at close to 10.5% below its most recent net asset value per share.
3. Vitesse Energy
Buffett recently added another oil stock to Berkshire Hathaway’s portfolio. In the first quarter of 2023, he bought more than 51,000 shares of Vitesse Energy (VTS). The company owns (but doesn’t operate) oil and gas assets, mainly in North Dakota’s Bakken oil field.
Vitesse offers a dividend yield of over 8.3%. That makes it the highest-yielding stock directly owned by Berkshire.
What does Buffett like about Vitesse that might make it attractive to other investors? There’s the great dividend, of course. But I suspect that Buffett views Vitesse’s management team in high regard as well. The company’s executives, particularly CEO Bob Gerrity, have great track records of success in the oil and gas industry.
Buffett also believes that demand for oil and gas is likely to increase over the coming years. He said in an interview with CNBC in April that even if trillions of dollars are spent to reduce carbon emissions, fossil fuels will still be needed.