For almost 60 years, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett has been delivering outsize returns. Based on the closing price of Berkshire's Class A shares (BRK.A) on Oct. 10, he's overseen a nearly 5,500,000% aggregate return and watched his company (briefly) hit the trillion-dollar mark, which is something only eight publicly traded companies have accomplished.
The Oracle of Omaha's secrets to success really aren't secrets at all . Whether it's through his annual letter to shareholders, shareholder meetings, or rare interviews with financial media, Buffett willingly discusses the traits he looks for when putting his company's capital to work.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
But among the various characteristics that have powered Berkshire's phenomenal returns is his penchant for investing in dividend stocks . Companies that pay a dividend are almost always profitable on a recurring basis, time-tested, and capable of providing transparent growth outlooks.
More importantly, dividend stocks have absolutely crushed non-payers in the return column over the last half-century. According to The Power of Dividends: Past, Present, and Future , which was released last year by the investment advisors at Hartford Funds, dividend stocks have averaged a 9.17% annualized return over the previous 50 years (1973-2023), while non-payers have produced a more modest 4.27% average annual return over the same timeline.
Over the next 12 months, Warren Buffett is set to oversee the collection of roughly $5 billion in dividend income for Berkshire Hathaway.
However, three of Buffett's core holdings are generating truly outsize yields that range from 33% to 60% on an annual basis. His secret to netting these supercharged yields is really simple: patience.
Coca-Cola: 60% annual yield to cost
Out of the 43 stocks and two index funds held in Berkshire Hathaway's $313 billion portfolio, none has been a fixture longer than beverage behemoth Coca-Cola (NYSE: KO) .
Buffett's company has been a shareholder of Coca-Cola since 1988, with Berkshire boasting an enviable cost basis in the company of $3.2475 per share. Given that Coca-Cola has raised its dividend for 62 consecutive years and is currently doling out $1.94 annually, Berkshire is netting a whopping 60% annual yield on this position , relative to its cost basis. Berkshire's brightest investment minds simply sitting on their hands will lead to $776 million in annual income over the next 12 months.
One of the clearest reasons Coke has been such a steady outperformer for decades is because it's a consumer staples stock . This is to say that it sells products (beverages) that are in demand regardless of how well or poorly the U.S. and global economy are performing. Selling basic need goods ensures cash flow consistency year after year.
The company also has virtually unrivaled geographic diversity in its corner . Sans North Korea, Cuba, and Russia, it has operations in every other country. This means it generates highly predictable operating cash flow in developed markets, but is also moving the organic growth needle in emerging markets.
Further, Coca-Cola was named the most-chosen brand by Kantar's "Brand Footprint" report for the 12th consecutive year in 2024. Well-known, time-tested, consumer staples stocks tend to outperform over long periods, and Coca-Cola is no exception.
Image source: Getty Images.
American Express: 33% annual yield to cost
A second longtime holding in Berkshire Hathaway's portfolio that's responsible for an outsize yield is credit-services provider American Express (NYSE: AXP) , which is better known as "AmEx."
AmEx has been a continuous holding for Buffett's company since 1991, with Berkshire sporting a cost basis in the company of about $8.49 per share. Although AmEx doesn't increase its dividend on an annual basis like Coca-Cola, it has boosted its payout notably over time. The $2.80 per share that's being paid out annually ($0.70 per quarter) equates to a 33% yield relative to cost for Buffett's company.
Warren Buffett is a huge fan of financial stocks because they're cyclical . Even though recessions are a normal part of the economic cycle, they resolve quickly. Financial stocks like AmEx are usually able to take advantage of economic expansions lasting disproportionately longer than downturns.
What's arguably even more important for American Express is being able to take advantage of both sides of a transaction . It serves as the third-largest payment processor in the U.S. by credit card network purchase volume, which allows it to collect fees from merchants. Additionally, it generates annual fees and interest income by acting as a lender via its credit cards.
Lastly, AmEx has historically done a phenomenal job of attracting high-earning cardholders. The well-to-do are less likely to alter their spending habits, regardless of what the U.S. or global economy throw their way.
Moody's: 34% annual yield to cost
The third high-octane stock that Warren Buffett is generating a jaw-dropping yield to cost on is ratings agency Moody's (NYSE: MCO) .
Patience is the theme of this list. Moody's has been a pillar in Berkshire's portfolio since being spun off from Dun & Bradstreet in 2000. Over that time, Moody's base annual payout has grown to $3.40 per share. With Berkshire's cost basis in Moody's a minuscule $10.05 per share , it means Buffett's company is netting a cool 34% yield, relative to cost.
For more than a decade, Moody's Investors Services benefited immensely from historically low interest rates. Businesses and governments were eager to raise capital at attractive rates, which kept Moody's ratings agency busy.
But with interest rates climbing at a rapid clip since March 2022, it's the company's Analytics segment that's now driving its growth. This is the segment responsible for assessing risk management and offering compliance solutions to its customers. With a couple of predictive indicators suggesting trouble is on the horizon, such as the first meaningful decline in M2 money supply since the Great Depression and the longest yield-curve inversion in history, risk management solutions should remain a hot commodity.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Moody's. The Motley Fool has a disclosure policy .
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