Warren Buffett Likes These 5 Dividend Stocks

warren buffett

Many investors continue to find comfort in dividend-paying stocks as interest rates remain near historic lows. Dividends can provide a stable source of cash flow that exceeds the rate on bonds or savings accounts, and often help investors lock in returns. Warren Buffett’s Berkshire Hathaway (NYSE:BRKA) hasn’t paid a dividend in decades, but his largest equity holdings are some of the most well-known dividend payers in the market.

The Oracle of Omaha has not paid a dividend since 1967, when Berkshire Hathaway returned 10 cents per share to investors. When asked about the dividend, Buffett simply said, “I must have been in the bathroom when the decision was made.” However, he has provided insightful views on the subject over the years. Buffett believes management should think long and hard about when to retain earnings and when to distribute them to shareholders. As he explained in a past shareholder letter, “Allocation of capital is crucial to business and investment management.”

At this point in time, Buffett believes Berkshire Hathaway should retain its earnings in favor of paying out a dividend. The company is able to put those earnings to better use, and shareholders even receive benefits from Berkshire Hathaway investing in large, stable companies that more often than not pay attractive dividends. In fact, Berkshire Hathaway received $1.4 billion in dividends last year from its top four holdings.

Here’s a look at five Buffett-approved dividend stocks that appear set to return capital to shareholders for many years to come.

Screen Shot 2014-03-07 at 8.41.23 AM

1. Procter & Gamble (NYSE:PG)

The consumer giant was founded in 1837 and pays an attractive dividend of 3.1 percent. Shares have struggled to gain momentum this year but have a payout ratio of 65 percent. At the end of the fourth quarter, Berkshire Hathaway held a $4.3 billion position in Procter & Gamble.

Screen Shot 2014-03-07 at 8.41.45 AM

2. International Business Machines (NYSE:IBM)

Despite Buffett usually staying clear of technology names, Berkshire Hathaway held a $13.8 billion position in IBM as of the end of last year. IBM is one of the most influential blue chips in the market and has a dividend yield of 2 percent. Its payout ratio is 25 percent. Shares of IBM are flat on the year.

Screen Shot 2014-03-07 at 8.42.12 AM

3. American Express (NYSE:AXP)

American Express is the world’s largest card issuer by purchase volume. The company yields about 1 percent, but with a payout ratio of only 19 percent, there is plenty of room for future dividend hikes. Berkshire Hathaway held a $13.8 billion position in American Express at the end of the fourth quarter.

Screen Shot 2014-03-07 at 8.42.33 AM

4. Coca-Cola (NYSE:KO)

The Georgia-based beverage company is easily one of Buffett’s favorite dividend stocks. In a recent interview, he said, “We’ve never sold a share, and I wouldn’t think of selling a share.” Coca-Cola pays a dividend of 3.2 percent, and the company’s payout ratio is 64 percent. Shares are down nearly 7 percent this year.

Screen Shot 2014-03-07 at 8.42.51 AM

5. Wells Fargo (NYSE:WFC)

The bank was founded in 1852 and is Berkshire Hathaway’s largest equity position, with a value of $21 billion at the end of the fourth quarter. Wells Fargo pays a dividend of 2.5 percent, and shares have jumped more than 4 percent this year. The company’s payout ratio is 31 percent. Wells Fargo is also America’s most profitable bank.

More From Wall St. Cheat Sheet:

Follow Eric on Twitter @Mr_Eric_WSCS