Why Buffett's Largest Holdings Should Be in Your Portfolio - Seeking Alpha

Why Buffett's Largest Holdings Should Be in Your Portfolio - Seeking Alpha

Call it luck, skill or a combination of the two, but it’s hard to deny the investing success of Warren Buffett. With investors consistently looking for stock advice, why not follow the lead of one of the most profitable pickers. The Oracle of Omaha has proven himself time and time again having ousted the S&P 500 by an average of 10.8% over each of the last 45 years. Listed below are 9 of Buffett’s largest holdings which represent over 76% of Berkshire Hathaway’s total investment portfolio.

Shares	Ticker	Company	% Ownership	Market Value	% of Portfolio
200,000,000	KO	Coca-Cola	8.6%	$13.1 Billion	21.3%
358,936,125	WFC	Wells Fargo	6.8%	$11.1 Billion	18.0%
151,610,700	AXP	American Express	12.6%	$6.5 Billion	10.6%
72,391,036	PG	Procter & Gamble	2.6%	$4.6 Billion	7.5%
97,214,584	KFT	Kraft Food Inc	5.6%	$3 Billion	4.9%
45,022,563	JNJ	Johnson & Johnson	1.6%	$2.8 Billion	4.6%
78,060,769	USB	U.S. Bancorp	4.1%	$2.1 Billion	3.4%
39,037,142	WMT	Wal-Mart Stores, Inc	1.1%	$2.1 Billion	3.4%
29,109,637	COP	ConocoPhillips	2.0%	$1.9 Billion	3.1%

Coca-Cola (KO) has proven to be one of Buffett’s greatest value plays. Since Berkshire’s initial cost basis of $1.3 Billion, the 200 million share position in KO has increased in value to over $13 Billion. Hidden within this “dividend champion”, having increased payouts for straight 49 years, is the power of increasing yield on cost. Buffett now enjoys a yield on cost of 29%! With a 9.5% 5-year dividend growth rate look for your current yield on cost to double within 10 years. Beyond the long and stable increases in dividend payouts, KO also enjoys a strong moat and looks for growth opportunities in emerging markets. Recognizing the declining demand for soda, Coca-Cola has established itself with over 3,300 beverage options. Recently KO hit its 52-week high. It might not be a bargain, but it certainly could still be a buy.

Wells Fargo (WFC) had a long and stable history of increasing dividends… until 2009. But the recession has made way and confidence is way up. In Buffett’s annual letter he predicted WFC would increase dividends substantially, as the Fed would recognize the banking giant’s financial strength and lift its “across the board” dividend freeze. True to prediction form, WFC issued a special dividend of $.07 in addition to the quarterly payout of $.05 in March. Still a far cry from the pre-recession $.34 a quarter, but management confidence and a meager 9% payout ratio suggest more increases are in the future.

With over 150 million shares, Buffett owns 12.6% of the credit card giantAmerican Express (AXP). AXP is not listed on the dividend champion, contender or challenger list; but that’s not to say that its dividend payout hasn’t been consistent. American Express has paid the same $.18 dividend for the last 13 quarters and before that has shown steady increases since 1977. Its 21% payout ratio suggest future dividend growth is obtainable, although some feel that AXP needs to gain card members to compete with Visa (V), MasterCard (MA) and Discover (DFS). Relief might be on its way as current debit card legislation threatens to push more people towards credit cards.

Procter & Gamble (PG) is an income investor’s best friend having increased its dividend for 54 straight years. Buffett backed into this stock by owning the PG acquired Gillette. Regardless of how he ended up there, his original cost of $460 million has ballooned to a value of over $4.6 Billion today. This consumer goods company shows up with a 3.1% current yield and a sustainable 53% payout ratio. For such a stable company the 11% ten year dividend growth rate is more than inviting.

Kraft Food Inc (KFT) might not be on Buffett’s good-guy list, but it is in his portfolio. Much like AXP, KFT has made steady, albeit currently stagnant, increases in dividend payouts. Stuck on $.29 for the last 11 quarters, KFT does come in with an above average yield of 3.7%. Buffett has lost on this investment to date, but a 49% payout ratio leaves room to make amends with increased cash distributions. After all, Warren could have dropped this position long ago.

Johnson & Johnson (JNJ) is the type of stock you turn to if love long dividend histories and Buffett picks but decided to pass on the slightly lengthier increase records of beverage giant KO and consumer staple PG. This pharmaceutical powerhouse has increased its dividend payout for 48 straight years and looks to do it again this April. The 3.6% current yield is more than ample given the 5 year dividend growth approaching 11%. JNJ has taken blows from quality control and recalls as of late, but for the bold it might be a chance to buy in at the same price as Warren.

U.S. Bancorp (USB) is another investment Buffett is losing on to date. But don’t be afraid to copy in the commentary from WFC, as it’s pretty much the same story. USB had a strong history of paying and increasing dividends from 1987 until 2009. The mandatory freeze dropped their quarterly dividend to $.05 a share. When approved by the Fed, this bank holding company more than doubled their dividend to $.125. Still well below the pre-recession level of $.425, the 12% payout ratio leaves plenty of room for future growth. Early prediction, Buffett’s year to year yield on cost makes a healthy jump.

Wal-Mart Stores, Inc (WMT) is a member of the “dividend champion” list having increased its payout for 37 straight years. Trading with a yield in the low 2 percentages just a month ago, a recent dividend increase has lead to much more acceptable 2.8% current yield. Future growth looks promising as this superstore has seen dividend growth near 18% for the last 10 years. Even if you’re not a huge Buffett fan (and still reading this far) you can take stake in the fact that Bill Gates is an investor as well.

ConocoPhillips (COP) earns a spot on the “dividend contender” list having increased dividends for 11 straight years. Oil is big in the news right now, and even if you think it’s a temporary spike, future demand is likely to stay. Moreover COP has operations in natural gas and oil sands. The move from “contender” to “champion” might take a while (say 14 years) but the 35% payout ratio suggest sustainability. In the meantime the near 13% 5-year growth rate in dividends will help your yield on cost expand.

Perhaps it’s a reflection of the current economic recovery, but these 9 stocks look poised for strong futures. Of course if you really want to invest like Buffett, you could simply take a stake in his company Berkshire Hathaway (BRK.A). Those without the capital for a $125,000 share, can always move to the next tier BRK.B pegged at 1/1500^th of an A share, although without the voting rights. Some might complain about the lack of dividends, but others might conclude that Berkshire’s reinvestment is like having Buffett as your personal advisor. Invest like Buffett or with Buffett, history says you’re a winner either way.

Disclosure: I am long KO.