There are several things Warren Buffett is known for as an investor. First, the Oracle of Omaha has consistently emphasized the importance of having a long-term mindset when investing in stocks. Second, he famously loves dividends.
It’s therefore no surprise that the company he chairs, Berkshire Hathaway, boasts several stocks in its portfolio that are terrific options for both long-term and income-seeking investors. Here are three examples: Apple (AAPL -0.17%), Coca-Cola (KO 0.54%), and Visa (V -2.42%).
These three companies comprise 38% of Berkshire Hathaway’s portfolio. Let’s see what the investment legend might like about them.
1. Apple: 28.12%
Apple has long been one of Buffett’s largest holdings. The tech company has several attributes that make it an excellent long-term option. Consider its competitive advantage: Its app store benefits from the network effect, its brand name is one of the most valuable in the world, and its ecosystem (thanks to unique functionalities only available between Apple’s devices) benefits from high switching costs.
Some might argue that Apple’s market-beating days are over, considering that the iPhone no longer generates the same excitement it once did. However, Apple is adapting. The company’s services segment has been gaining prominence for years and now boasts over a billion paid subscriptions.
Apple also entered the era of artificial intelligence (AI) with its newest devices offering a suite of AI-related features. Though Apple was a bit late in joining the AI field, the company is known for adding its own spin to existing technologies to make them even more popular. And with more than 2 billion installed devices, the company will find more ways to monetize its loyal base of customers.
Turning to Apple’s dividend, the company has increased its payouts by 92% in the past decade. Apple’s forward yield of 0.4% isn’t impressive — the S&P 500‘s average is 1.3%. But the company’s strong underlying business and incredible ability to generate cash mean it won’t stop returning capital to shareholders in this way anytime soon. Apple is a great stock for growth and income-oriented investors.
2. Coca-Cola: 9.32%
Coca-Cola is one of the (perhaps the) best-known brands of soft drinks with a vast portfolio of products that it adapts according to evolving market demands and region-specific preferences. The company dabbles in more than just soft drinks, though. It offers alcoholic beverages, coffee, tea, water, healthier versions of its most famous drinks, and much more. Coca-Cola’s moat stems from its famous brand name and logo, which most people around the world recognize on sight.
The company inspires familiarity and confidence, which helps maintain a good amount of demand for its products. That’s why Coca-Cola generates steady revenue and profits. Though not impressive in the growth department, Coca-Cola’s consistency in an otherwise volatile market is valuable, particularly for long-term risk-averse investors. It has also allowed Coca-Cola to maintain one of the most impressive dividend streaks on the market. The beverage giant is a Dividend King on an active streak of 62 consecutive years of payout increases.
Cutting its payouts now would be catastrophic for the company, considering it would take the beverage leader another 50 years to join the elite club of Dividend Kings again. Coca-Cola won’t resort to that move unless its business is in the dumps — and even the pandemic wasn’t able to get the company to such lows. So, investors can take Coca-Cola’s dividend straight to the bank.
3. Visa: 0.98%
Visa runs a network that helps facilitate credit card payments. The company is not an issuing bank, which also leaves it off the hook when it comes to consumers defaulting on their credit card payments. Another vital aspect of Visa’s business is its network effect — the more people who own cards that bear its logo, the more attractive it is for merchants, and vice versa. This dynamic has resulted in a near duopoly in this industry, and Visa holds the dominant market position.
Further, Visa’s business boasts strong gross and net margins. The company earns revenue through fees it charges for transactions, but with an already established payment network, these fees add little to the company’s cost of goods sold. In short, Visa benefits from strong operations and generates excellent financial results. Its success has come partly from it displacing cash transactions with credit card ones, but cash and checks still account for trillions worth of transaction volume every year. In plain English: Visa’s long-term prospects remain attractive.
What about the company’s dividend? Its forward yield is only 0.6%, but Visa has increased its payouts by almost 392% in the past decade. Even though it accounts for a tiny percentage of Berkshire Hathaway’s invested portfolio, Visa is a terrific dividend growth stock to buy and hold for good.
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Visa. The Motley Fool has a disclosure policy.
