Berkshire Hathaway chairman Warren Buffett has got some serious Money Machine Stocks in his portfolio. Read full article to know which are they.
People love to invest in stock market because stock market is the best friend of compounding effect. The great scientist Albert Einstein’s 8th wonder that is compounding effect has already made investors like warren buffet multi-billionaire. But, to see compounding effect in stock market you need patience as warren buffet and ability to choose winning stock which buffet already did in 1980-1990. He chose evergreen shares at right timing and now he is ripping the fruit of his right choices. Warren buffet didn’t start investing with billions of dollars. But, with small amount he invested in such a stock that grew his wealth and using those profits he expanded his empire. And in this video, we are going to discuss the same stocks that actually doubles warren buffet’s money every 4 to 5 years.
Berkshire Hathaway CEO Warren Buffett has done pretty well for himself and his shareholders throughout his career. Buffett’s net worth has swelled to around $99 billion as of this past weekend. This figure doesn’t factor in the $37 billion he’s donated to various charities over the past 14 years. The Oracle of Omaha has also created $400 billion in value for shareholders. In the past 55 years, the benchmark S&P 500 has gained 19,784%, inclusive of dividends paid, while Berkshire Hathaway stock is up 2,744,062%. Which is huge percentage of return.
Worth to be note that this huge Berkshire Hathaway growth was possible because of warren buffet’s love for dividend paying stocks. And one cannot deny Dividends have played a key role in Buffett’s long-term success. Warren Buffett has always been excellent at identifying businesses with clear-cut and sustainable competitive advantages, and he’s benefited from holding onto these businesses for long periods of time. He’s also quite the fan of value stocks.
But there’s one factor in Buffett’s success that doesn’t get nearly the attention it deserves: his affinity for dividend stocks. The vast majority of companies that pay a dividend are profitable on a recurring basis and have time-tested business models.
Dividend stocks have historically run circles around peers that don’t pay dividends. In 2013, Bank of America/Merrill Lynch released a report comparing the average annual return of stocks that initiated and grew their pay-outs between 1972 and 2012 with the average annual return of stocks that don’t pay dividends. The result was night and day. I mean it’s really hard to even imagine the gap between those two. Dividend-paying stocks averaged a 9.5% annual increase, while dividend nonpayers only managed an average return of 1.6% per year over this four-decade run. That’s why warren buffet always loved stocks that pay dividends and he is not even ready to sell them after decades of holding them.
However, Buffett has an extra advantage when it comes to dividend stocks. Because the big bull invests for the very long term, his initial cost basis on long-held stocks can be quite low. If brand-name companies keep growing their pay-outs, the time it takes for Buffett to double his money, based on Berkshire’s initial cost basis, shrinks. Take example of Coca-Cola. Everyone knows about Coca-Cola. Perhaps it comes as no surprise that Berkshire Hathaway’s longest-tenured holding also happens to be one of its most robust money makers.
Beverage giant Coca-Cola has been sitting in Buffett’s portfolio since 1988, with the king of Berkshire’s Coca-Cola company boasting an initial cost basis of $3.245 per share. Coca-Cola pays out $1.64 per share in dividends, so Berkshire Hathaway’s yield on original cost is a mouth-watering 50.5%. Remember, dividend is paid on initial cost of stock and not on current price of stock. Let’s Put it another way, Berkshire is doubling its initial investment on dividends alone every two years. Moreover, Coke has also increased its base dividend for 58 consecutive years.
If you’re wondering why Coca-Cola has been such a successful investment, look to the company’s geographic reach. With the exception of North Korea and Cuba, it operates in every country around the world. It has a solid 20% share of the cold drink market in developed countries, but it has got plenty of room to grab market share in faster-growing emerging economies which right now stands at around 10%.
Another reason Coca-Cola is such a long-term star is its ability to connect with consumers. Coca-Cola is one of the most recognized brands in the world, and it’s done an excellent job of marketing to new and current users. By tying its products in with the holidays and using a variety of social media and celebrity ambassadors, the company has never struggled to be a front-and-centre brand. And its not like monopoly in the industry. There are lot of compnies who are trying to compete with coca-cola like pepsi and redbull. But, Coca-cola has unique place in consumer’s heart. It’s not expensive and hyas got unique taste that lead people to have cooca-cola in almost every function. They just made one unnecesaty thing neccesaty in common peoploe’s life and here they are. Loved by investors and consumers shining and standing stron even in case of crisis. So, overall for sure Coca-Cola stock must e one of the good choices made by warren buffet in his life.
Next stock that helped warren buffet to grow his wealth is Moody’s. If you don’t know what Moody’s is then it is the credit rating, risk assessment, and data analytics company which was was founded in 1909. The main thing is Despite of paying out only a 0.76% yield, still Moody’s is an absolute money machine for Warren Buffett’s company. Thanks to warren buffet who grabbed huge potential of Moody’s in its initial days. Berkshire Hathaway’s initial cost basis is only $10.05 a share (Moody’s closed at almost $269 this past week). With the company paying out $2.24 in dividends each year, Berkshire’s annual yield based on its original cost is 22.3%. This means Berkshire is doubling its initial investment every 4.5 years, without reinvestment. And as of 2nd quarter of 2020 warren buffet’s portfolio has 6.7 billion dollars in Moody’s investment. But, one thing is we can’t accurately calculate Buffets initial investments he keeps on increasing the quantity of shares. But still he is in solid profit with Moody’s.
And in pandemic With businesses looking to shore up liquidity and lending rates plunging, corporations have been issuing plenty of debt. Then again, lending rates have been well below their historical average for more than a decade, so conditions have been ripe for businesses to lean on debt offerings. These factors are keeping the company’s Investment Services segment busy.
Don’t overlook Moody’s Analytics, either. The company’s Analytics segment is arguably its most consistent growth driver. Its solutions help businesses forecast and manage risk, as well as comply with regulations in their respective industries.
Aside from Buffett’s purchase of Apple stock and the acquisition of GEICO in 1996, Moody’s might be the this beast’s greatest investment.
Next comes his one of the favorite stocks of warren buffet American Express. occupying 6.5% of the portfolio. Berkshire Hathaway holds 151.6 million shares, valued at $14.4 billion as of Sept. 23, 2020. It has been a staple in Berkshire Hathaway’s portfolio since 1993, with an initial cost basis of a mere $8.49 a share. Based on the $1.72 per share that American Express is paying out, Berkshire’s yield on its initial cost is a delectable 20.3%. Considering this rate warren buffet’s investment would get doubled in every 5 years.
The beauty of American Express’ business model is twofold. First, the company targets affluent consumers. The well-to-do are less likely to reduce spending or fail to pay bills when economic uncertainty arises. This fact has always helped AmEx cope well with minor economic contractions.
Secondly, American Express is a double-edge sword: In addition to being a payment facilitator for merchants, it also lends to consumers and businesses. This model exposes AmEx to rising credit delinquencies during recessions. Thankfully, recessions historically are far shorter than periods of economic expansion. AmEx is built to take advantage of an expanding U.S. and global economy over the long run. So, warren buffet is always get relaxed whenever someone talk about American Express.
These are the stocks which pays dividends and make warren buffet’s investment double every 4 to 5 years. Though, he is having this type of dividend return because of his right choice at the start of his carrier we should also note that how he tightly holds this stock during financial crisis. So, when people start selling and stock reaches to bottom, he again try to look whether increasing stake in these companies can benefit him or not. And if he really sees some value in it then he proceeds with buying more stocks.