Warren Buffett’s Top 20 Stocks

To invest in great businesses, you have to find them first.

That’s where Warren Buffett comes in…

Warren Buffett’s portfolio is filled with quality high dividend stocks.

You can ‘cheat’ off of Warren Buffett’s own picks to find high-quality dividend stocks for your portfolio. That’s because Buffett (and other institutional investors) are required to periodically show their holdings in a ’13F Filing’.

This article analyzes Warren Buffett’s top 20 stocks based on information disclosed in his newest 13F filing.

How To Use Warren Buffett’s Portfolio To Find Investment Ideas

Having a database of Warren Buffett’s top stocks is more powerful when you have the ability to filter it based on important investing metrics.

That’s why this article’s Excel download is so useful…

It allows you to search Warren Buffett’s portfolio to find dividend investment ideas that match your specific portfolio.

For those of you unfamiliar with Excel, this section will show you how to filter Warren Buffett’s portfolio for two important investing metrics – price-to-earnings ratio and dividend yield. Click here to download Buffett’s holdings now.

Step 1: Click on the filter icon in the column for dividend yield or price-to-earnings ratio.

Warren Buffett's Top Stocks Excel Screenshot 1

Step 2: Filter each metric to find high-quality stocks. Two examples are provided below.

Example 1: To find stocks with dividend yields above 1% and list them in descending order, click the ‘Dividend Yield’ filter and do the following:

Warren Buffett's Top Stocks Excel Screenshot 2

Example 2: To find stocks with price-to-earnings ratios below 25 and list them in descending order, click the ‘Price-to-Earnings Ratio’ filter and do the following:

Warren Buffett's Top Stocks Excel Screenshot Additional Example

Table of Contents

You can skip to an analysis of any of Warren Buffett’s 20 top stock holdings with the table of contents below. Stocks are listed in order from smallest percentage of Buffett’s portfolio to largest percentage of Buffett’s portfolio.

  • VeriSign, Inc. (VRSN)
  • USG Corporation (USG )
  • The Bank of New York Mellon Corporation (BK)
  • General Motors Company (GM)
  • United Continential Holdings, Inc. (UAL)
  • American Airlines Group Inc. (AAL)
  • The Goldman Sachs Group, Inc. (GS)
  • Delta Air Lines, Inc. (DAL)
  • Southwest Airlines Co. (LUV)
  • DaVita Inc. (DVA)
  • Moody’s Corporation (MCO)
  • Charter Communications (CHTR)
  • U.S. Bancorp (USB)
  • Phillips 66 (PSX)
  • International Business Machines Corporation (IBM)
  • American Express Company (AXP)
  • The Coca-Cola Company (KO)
  • Apple Inc. (AAPL)
  • Wells Fargo & Company (WFC)
  • The Kraft Heinz Company (KHC)

Warren Buffett & Dividend Stocks

Buffett has grown his wealth by investing in and acquiring businesses with strong competitive advantages trading at fair or better prices.

Most investors know Warren Buffett looks for quality, but few know the degree to which he invests in dividend stocks:

  • 92% of Warren Buffett’s portfolio is invested in dividend stocks
  • His top 4 holdings have an average dividend yield of 2.6% (and make up 57% of his portfolio)
  • Many of his dividend stocks have paid rising dividends over decades

Warren Buffett prefers to invest in shareholder friendly businesses with long track records of success.

Warren Buffett’s Recent Investment Activity

Warren Buffett’s most recent 13F filing was much less busy than his prior filing, where he disclosed large stakes in Apple and the four large U.S. airlines.

Buffett’s first quarter 13F reported three notable activities.

First, Buffett substantially increased his position in Apple. The Oracle of Omaha’s investment portfolio now contains 129,357,106 shares of Apple with a market value of $18.6 billion. Apple is 11.5% of Berkshire Hathaway’s common stock portfolio and is his third largest individual stock position.

Secondly, Buffett has noticeably reduced his stake in IBM. Buffett initially purchased IBM in 2011, and has stated publicly that he has trimmed his position by approximately one-third. Buffett’s IBM stake has been trimmed to $11.2 billion, or 7% of the company’s total investment portfolio.

Lastly, Buffett has upped his stake in the Bank of New York Mellon Corporation by 52%. While it is impossible to know exactly what Buffett was thinking when he accumulated more BNY Mellon stock, it is possible that this trade is a play on rising domestic interest rates. Buffett’s BNY Mellon position now sits at $1.6 billion, or 1% of the total investment portfolio.

Moving on, Warren Buffett’s top 20 stock positions will now be analyzed in detail.

#20 – VeriSign, Inc. (VRSN)

Dividend Yield: N/A (VeriSign does not pay a regular dividend)
Adjusted Price-to-Earnings Ratio: 24.7
Percent of Warren Buffett’s Portfolio: 0.7%
10 Year Total Return CAGR: 14.6%

Berkshire Hathaway owns 12,952,745 shares of VeriSign, Inc. (VRSN) with a cumulative market value of $1.1 billion.

VeriSign is a worldwide leader in domain name registry services and internet security. The company was founded in 1995 by James Bidzos (who still serves as its President, CEO, and Chairman) and has grown to a market capitalization of $9.1 billion. VeriSign is headquartered in Reston, Virginia.

The bulk of VeriSign’s business is in domain name registry services. VeriSign manages a domain name base of more than 140 million, which includes both .com and .net names.

VRSN Verisign Registry Services Highlights 1

Source: VeriSign First Quarter Investor Presentation, slide 4

VeriSign’s domain name registry database is growing.

The company recorded 9.5 million new name registrations in the first quarter of 2017 and benefits from a renewal rate of more than 65%.

More details about VeriSign’s domain name registry business can be seen in the following slide.

VRSN Verisign Registry Services Highlights 2

Source: VeriSign First Quarter Investor Presentation, slide 5

VeriSign is in the business of managing internet data, registering domain names, and providing internet security services.

This is a very capital-light business (which is something that Warren Buffett is known to search for among his investments). After considering VeriSign’s business model, it should not be surprising that the company has sky-high profit margins.

VeriSign reported GAAP operating margin of 60.7% in the first quarter of 2017, and non-GAAP operating margin of 65.1%. The company generates this performance from a relatively small employee base (984 full-time employees at the end of the last quarter) which helps to keep its salary expenses low in the high-paying internet sector.

VRSN Verisign Q1 2017 Financial Performance

Source: VeriSign First Quarter Investor Presentation, slide 6

Looking ahead, VeriSign expects its high levels of profitability to continue.

The company is anticipating non-GAAP operating margin of 64.5%-65.25% for the full year of fiscal 2017.

Further, the company is expecting revenues of $1.145-$1.160 billion, which means its current $9.1 billion market capitalization is priced at a price-to-sales ratio of ~8. This high price-to-sales ratio is another telltale sign of a high-margin, capital-light business model.

VRSN Verisign Financial Guidance

Source: VeriSign First Quarter Investor Presentation, slide 7

VeriSign is unlike most companies that are covered on Sure Dividend because the company does not pay a regular quarterly dividend.

However, the company did pay a special one-time dividend on its common stock in both 2010 and 2011, which suggests that management may be open to initiating a regular distribution at some point in the future.

Verisign reported adjusted earnings-per-share of $3.61 in fiscal 2016. The company’s current stock price of $89.19 represents a 24.7x multiple of 2016’s adjusted earnings-per-share.

With a valuation of ~25, VeriSign is trading at a valuation similar to the rest of the stock market (on average). VeriSign’s lack of dividend payments and average valuation means that investors can likely find better investment opportunities elsewhere on this list.

#19 – USG Corporation (USG)

Dividend Yield: N/A (USG does not currently pay a quarterly dividend)
Adjusted Price-to-Earnings Ratio: 16.8
Percent of Warren Buffett’s Portfolio: 0.8%
10 Year Total Return CAGR: -5.1%

Berkshire Hathaway owns 39,002,016 shares of USG Corporation (USG) with an aggregate market value of $1.2 billion. Berkshire became USG’s largest shareholder in 2013 when it exercised its position of USG convertible bonds acquired in 2008.

USG – also known as United States Gypsum – is a domestic manufacturer of construction materials. Most notably, USG manufactures drywall and joint compounds and is the largest manufacturer of wallboard in the United States.

USG was founded in 1901 and has grown to a market capitalization of $4.2 billion. USG is headquartered in Chicago and is one of the smaller companies (by market capitalization) in Warren Buffett’s investment portfolio.

With that said, USG is far from a small business. The company generates more than $700 million in quarterly net sales and $100 million in quarterly operating profit.

USG Corporation Q1 2017 Highlights

Source: USG Corporation First Quarter Investor Presentation, slide 5

As a manufacturer of construction materials, USG operates what Warren Buffett calls a ‘commodity business’ – one where the single largest differentiator between competitors is the price of their products or services.

Accordingly, USG is investing significant amounts of capital to reduce its cost structure, passing these savings onto both its customers and its investors.

More specifically, USG is investing a cumulative $300 million in advanced manufacturing cost saving initiatives between 2017 and 2019 which is expected to generate $100 million of additional EBITDA after completion.

USG is also investing to improve its product offerings. The copmany has managed to reduces its costs by 10% and reduce the weight of tis wallboard by 20% – the two primary concerns of its customers in the construction industry.

USG Corporation 2017 Strategic Priorities

Source: USG Corporation First Quarter Investor Presentation, slide 11

USG does not currently pay a regular quarterly dividend and has not paid one since the first quarter of 2001. Accordingly, investors looking to generate current portfolio income are better served looking elsewhere.

With that said, the company is still quite shareholder-friendly. USG recently announced a $250 million share repurchase program, which amounts to ~6% of the company’s market capitalization at the time of this writing.

USG is also trading at a reasonable valuation.

At the end of fiscal 2016, USG reported full-year adjusted earnings-per-share of $1.70. The company’s current stock price of $28.63 represents a 16.8x multiple of 2016’s earnings (using adjusted earnings).

For context, the average price-to-earnings ratio in the S&P 500 is about 25 right now. USG appears to be attractively valued relative to the rest of the stock market (on average).

Warren Buffett’s interest in USG and the company’s appealing valuation are two reasons why this company merits future research, particularly for investors that do not need current dividend income.

#18 – The Bank of New York Mellon Corporation (BK)

Dividend Yield: 1.6%
Adjusted Price-to-Earnings Ratio: 14.7
Percent of Warren Buffett’s Portfolio: 1.0% 
10 Year Total Return CAGR: 2.8%

Warren Buffett’s investment portfolio holds 33,012,059 shares of the Bank of New York Mellon Corporation (BK) with a total market value of approximately $1.6 billion. It is the smallest holding in Berkshire’s portfolio with a weighting of 1.0% or higher.

Buffett appears to like this stock right now. The Oracle of Omaha increased his stake in this financial services firm by 52% since his previous quarterly 13F filing.

The Bank of New York Mellon Corporation – or BNY Mellon, for short – is a large United States financial services holding company. BNY Mellon was formed in 2007 by the merger of The Bank of New York and the Mellon Corporation.

BNY Mellon is the world’s largest custodian bank with more than $30 trillion of assets in custody. The financial institution is also a prominent investment manager. The first quarter of 2017 saw BNY Mellon report assets under management of $1.6 trillion.

BK BNY Mellon Investment Management Metrics

Source: BNY Mellon First Quarter Earnings Presentation, slide 9

The company also has a robust lending business.

In the first quarter of 2017, BNY Mellon reported net interest revenue of $792 million. The company reported net interest margin – essentially the difference between interest earned and interest incurred –  of 1.14%.

BNY Mellon’s large loan book make it well-positioned to benefit from rising interest rates. This may be one reason why Buffett is bolstering his stake in this bank – rates are likely to rise periodically over the next few years.

BK BNY Mellon Net Interest Revenue

Source: BNY Mellon First Quarter Earnings Presentation, slide 11

The financial crisis of 2007-2009 made many investors wary of financial institutions as an asset class.

Fortunately for investors, large banks are now subject to a high degree of regulations all aimed at reducing investor risk. One of the main metrics that the banks are now assessed on is the Common Equity Tier 1 (or CET1) ratio. It is a measure of the proportion of risk-weighted assets on a bank’s balance sheet.

Higher CET1 ratios denote lower risk banks; conversely, lower CET1 ratios denote higher risk banks. Investors should be pleased to see that BNY Mellon has a CET1 ratio of 11.5% using the standardized approach, which is well in excess of the regulated minimum of 4.5%.

BK BNY Mellon Capital Ratios

Source: BNY Mellon First Quarter Earnings Presentation, slide 13

BNY Mellon is a large, diversified bank holding company with risk metrics well in excess of regulatory minimums. From a risk perspective, the company may appear suitable for investment.

However, the bank’s dividend yield is lower than many of its financial institution peers.

BNY Mellon currently pays a quarterly dividend of $0.19 per share which yields 1.6% on the company’s current stock price of $46.54.

For context, Wells Fargo (WFC) – another Warren Buffett favorite – has a current dividend yield of 2.9%, almost twice the yield of BNY Mellon. For investors focused on dividend yield and looking for exposure to the financials sector, BNY Mellon is likely not the best choice.

With that said, this bank is still attractively valued.

BNY Mellon reported adjusted earnings-per-share of $3.17 for the full year of 2016. The company’s current stock price of $46.54 is trading at a price-to-earnings ratio of 14.7x. For context, the S&P 500’s average price-to-earnings ratio is approximately 25.

Warren Buffett’s interest in BNY Mellon and the bank’s low price-to-earnings ratio make it an intriguing investment opportunity. You can read more Sure Dividend analysis on the Bank of New York Mellon Corporation at the following links:

#17 – General Motors Company (GM)

Dividend Yield: 4.6%
Price-to-Earnings Ratio: 5.3
Percent of Warren Buffett’s Portfolio: 1.1%
10 Year Total Return CAGR: N/A

Berkshire Hathaway’s investment portfolio holds a total of 50,000,000 shares of the General Motors Company (GM) with a total market value of $1.8 billion.

Along with being Buffett’s 17th largest individual stock position, it is also his portfolio’s second highest-yielding stock behind Verizon Communications Inc.(VZ).

General Motors is a well-known United States automotive manufacturer headquartered in Detroit, Michigan. The original General Motors was founded in 1908, but went bankrupt in 2009 during the depths of the financial crisis.

After much restructuring and assistance from the U.S. Treasury, General Motors was re-listed on the New York Stock Exchange in 2010.

Today’s General Motors is a very impressive enterprise. The company generated $166 billion of net revenue in 2016 to go along with $12.5 billion of adjusted EBIT and $9.4 billion of net income.

General Motors’ operational figures are similarly impressive. The company has ~225k employees and runs more than 170 manufacturing facilities which deliver to 19.5k automotive dealerships.

Altogether, General Motors delivered 10.0 million retail automotives and 6.2 mlilion wholesale automotives in 2016.

GM General Motors About GM

Source: General Motors May 2017 Shareholder Engagement Presentation, slide 3

The government’s bailout of General Motors during the financial crisis earned the company the nickname ‘government motors’. Many investors still have a bad taste in their mouth after losing money on this company in the last recession.

However, today’s GM is an independently profitable enterprise.

The company has grown its earnings-per-share by 24% per year (on average) over the last three years. General Motors has also meanginfully increased its free cash flow and has expanded its EBIT margin by 200 basis points during the same time period.

GM General Motors GM Team Delivering Record Results

Source: General Motors May 2017 Shareholder Engagement Presentation, slide 8

General Motors’ strong fundamental performance has translated to phenomenal shareholder returns.

The company’s common stock has meaningfully outperformed its largest competitor Ford (F) and has rewarded long-term investors with a 67.7% cumulative return (for a CAGR of 10.9%) over the past 5 years.

However, General Motors has underperformed its Auto OEM peers over the past 5 years, largely due to the strong performance of disruptive new market participants like Tesla Motors (TSLA).

GM General Motors Market is Recognizing GM's Progress - Strong Relative Total Shareholder Return

Source: General Motors May 2017 Shareholder Engagement Presentation, slide 15

A key component to General Motors’ fundamental growth and stock price performance has been the company’s focus on profitability.

General Motors has an internal target of a Return on Invested Capital (or ROIC) of 20%+. This is very high in a capital-intensive industry such as automotive manufacturing.

This high target for return on invested capital leads General Motors to be very selective in its capital allocation decisions. The company is focusing on its healthy and growing segments and making tough trade-offs to meet this high internal profitability target.

General Motors’ efforts on this front are driving meaningful improvements. The company reported an impressive 28.9% return on invested capital in the most recent fiscal year, and the trend is definitely improving as years go by.

GM General Motors 20% REOIC Adjusted Target Driving Capital Allocation Discipline

Source: General Motors May 2017 Shareholder Engagement Presentation, slide 9

Despite General Motors’ excellent fundamental performance in recent years, the market is failing to price this stock at a reasonable valuation. As we will see later, General Motors is trading at a mid-single-digit price-to-earnings ratio – far too low for a company with positive expected earnings growth.

So why is General Motors trading at such a discount?

There are a few factors.

First (and most importantly), the automotive industry is notoriously cyclical in nature. Consumers tend to cut spending on new automobiles when disposable income becomes constrained, which adversely impacts companies like General Motors and Ford.

Many market participants suspect that General Motors is at the peak of its business cycle, which will limit near-term earnings growth. As such, the company is trading at a lower valuation in anticipation of decreased earnings.

There are other smaller factors, as well. Many fear that General Motors will be severely impacted by the autonomous driving and electric vehicles being introduced by competitors like Tesla (TSLA). There are also lingering fears that automotive manufacturers may again go out of business if another severe recession hits our economy.

While it is true that General Motors may be at the peak of its business cycle, the company has reduced the cyclicality of its business model by significantly lowering the breakeven point of its various automobiles.

General Motors is also isolated from the impact of industry disruptions because it has its own autonomous vehicle division and the Chevrolet Bolt EV (its most popular electric vehicle offering) has been very well-received, earning Motor Trend’s 2017 Car of the Year.

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Carl Schwartz 4 years ago Member's comment

I always use #Buffet as a guide when investing.

Sonya Wiley 4 years ago Member's comment

Dear Warren

Love You

Sonya

Barry Hochhauser 4 years ago Member's comment

I think everyone loves #WarrenBuffet! :-)