As far as successful investors go, there’s no question that Warren Buffett is one of the best. He has created a gigantic empire by putting his money in long-term, high-quality companies. Taking a look at the Berkshire Hathaway investment portfolio is a great strategy for investment ideas if you are an investor.
When looking at the Berkshire Hathaway portfolio, Procter & Gamble, Walmart and Coca-Cola stand out as three great investments with solid track records for dividend growth over a long period of time.
One of the best examples of a company with a serious competitive advantage is Coca-Cola. The company itself has 16 billion-dollar brands. They have a distribution network unmatched by any other business. They have scale advantage is and a tremendous amount of financial resources to invest in research and development and marketing. It’s no surprise that Coca-Cola is one of the biggest holdings for Berkshire Hathaway. In Warren Buffett’s own words, “I’m the kind of guy who likes to bet on sure things.”
In developed countries, the latest trend toward healthy nutrition and market saturation may pose a challenge in developed nations. But the Coca-Cola Corporation is adapting to focus its initiatives on healthy alternatives. This will fit with their customers changing needs. When it comes to emerging markets, healthier choices and the traditional Coca-Cola drinks have much room for expansion and growth because of lower per capita consumption and the rise in income levels in these areas.
For 51 consecutive years, Coca-Cola has raised its dividend and continues to do so no matter what the financial environment or economic status. At this point, the business is paying a 2.8% dividend yield. It has a sustainable dividend payout ratio of about 55% of company earnings.
With over $450 billion worth of annual sales globally, Walmart is the biggest retail organization on planet Earth. The company has huge benefits when it comes to bargaining with suppliers. This is the reason why they can offer such low, competitive prices on a global scale. When it comes to negotiating power and scale in the discount retail business, Walmart knows exactly how to consolidate their position and leverage its humongous size.
On the flipside, things haven’t been going so easy for Walmart very recently. They are seeing competition from Costco and Amazon that pose a considerable potential risk. Plus weak consumer spending has also caused the company to see lackluster sales growth over the recent quarters. Additionally, reputation issues and legal expenses are also another major headache for Walmart investors as of late.
But take heart, because this business has shown us its ability to survive and thrive over multiple scenarios while consistently raising its dividend in tough economic times as well as the good times. The company has increased its dividends per share each year since it first started offering a dividend back in March 1974. And remarkably, in 2013 the company raised its dividend by 18% to reach $1.59 per share.
Walmart’s current dividend yield is 2.4%. They also have a conservative payout ratio in the amount of 35%. This leaves the business with plenty of room for dividend growth in the future, even if conditions continue to stay challenging.
Procter & Gamble
The Procter & Gamble portfolio consists of 25 major brands that generate over $1 billion in sales individually each year. Their main brands include Oral-B, Pantene, Gillette, Head & Shoulders and Pampers among numerous others. This business operates in over 180 countries. It serves almost 5 billion of the 7 billion people currently living on a planet today.
Procter & Gamble sell stable and reliable items that people use as part of their daily routines and everyday necessities. This creates a consistent cash flow no matter what the economic condition. The company also experiences tremendous benefits from brand recognition and its ability to scale. This sets the business apart from many of its smaller competitors.
Over the last few years, growth has slowed for Procter & Gamble. The company has taken it upon themselves to implement a series of cost-cutting initiatives. Plus they are looking to reinvigorate innovation and increase operational efficiency. During 2014, P&G intends to save over $1.4 billion for the cost of goods sold. They also look to improve productivity and manufacturing by about 6% this year.
The company has paid regular dividends for 123 years consecutively since they incorporated in 1890. And for the last 57 years in a row, they have raised their dividend distribution. This major corporation pays a dividend yield of 3%, and the payout ratio is quite reasonable at 59% of company earnings.
The Bottom Line
Spending some time looking over the Berkshire Hathaway portfolio is a great way to find high-quality investing opportunities and stock ideas from Warren Buffett. Procter & Gamble, Coca-Cola and Walmart are three highly recognized companies with tremendous trajectories of dividend growth. Since they are good enough for Warren Buffett, doesn’t it make sense that they would be good enough for your portfolio as well?