Here are Berkshire's highest-yielding stocks.
The 2020 stock market recovery rally stalled in September. Investors are now heading into an uncertain third-quarter earnings season, an uncertain November election and an uncertain 2021 economy. With interest rates near 0%, investors looking for reliable yield have few viable options. Fortunately, Berkshire Hathaway (ticker: BRK.A, BRK.B) CEO and legendary value investor Warren Buffett has been one of the most steady performers on Wall Street in recent decades. Berkshire doesn't pay a dividend, but plenty of Buffett's individual stock holdings do. Here are the eight Buffett stocks with the highest dividend yields.
Kraft Heinz Co. (KHC)
Kraft Heinz is not only one of Buffett's largest holdings but also one of the highest-yielding stocks in Berkshire's portfolio. Kraft Heinz shares have a 5.3% dividend, but the dividend has been forced higher by the stock's falling share price. Buffett initially invested about $10 billion in Kraft in 2015, and his stake of more than 325 million shares is now worth slightly less than $9.4 billion. Last year, Buffett acknowledged overpaying for Kraft, but he hasn't been selling. In February, Buffett said Kraft should focus on maintaining its dividend and paying down its debt.
Store Capital Corp. (STOR)
Store Capital is a net-lease real estate investment trust that owns single-tenant real estate properties. Store shares are down about 25% in 2020. But like many REITs, Store pays a sizable 5.2% dividend to help offset its losses. Unfortunately, roughly a third of Store's rental income comes from restaurants, health clubs, movie theaters and other businesses that have been hit hard by the health crisis. As a result, the company's rent collection dropped to less than 70% in May, a potentially concerning level. However, that figure increased to 85% by mid-July, and if the economy bounces back in coming quarters, Store could be an excellent high-yield rebound play.
Suncor Energy (SU)
As bad as Store's 2020 has been, Canadian oil and gas exploration and production company Suncor's 2020 has been even worse. Global travel has plummeted, and so have oil demand and prices. Suncor shares are down more than 60% year to date. After increasing its stake recently, Berkshire owns about $224 million in Suncor stock, but it's still one of the company's smaller investments. Suncor pays a 5.4% dividend, the company has a conservative balance sheet, and it owns a portfolio of assets that provide long-term visibility for investors. Unfortunately, the stock may continue to struggle until oil demand picks up.
UBS Group (UBS)
Buffett is known for his love of bank stocks, but the Federal Reserve isn't doing banks any favors. Near 0% interest rates pressure banks' net interest margins, and the latest Fed projections suggest that interest rates will stay where they are through at least 2023. Fortunately, UBS' Global Wealth Management, Asset Management and Investment Bank divisions performed extremely well in the second quarter, offsetting its lagging Personal & Corporate Banking segment. UBS split its 6.9% 2020 dividend because of the health crisis and plans to pay half via a special dividend in November. Berkshire owns about $5.18 billion in UBS stock.
M&T Bank Corp. (MTB)
M&T Bank is a regional U.S. bank based in Buffalo, New York, that focuses primarily on commercial banking. M&T's revenue was down 22.8%, and its net income was down 49% in the second quarter over the previous year. The stock is down about 45% year to date. Investors should continue to monitor the bank's credit quality, given its relatively high exposure to troubled corporate sectors, such as hotels, health care facilities and the transportation industry. But M&T trades at a forward earnings multiple of just 9.3 and pays a 4.7% dividend. Berkshire owns more than $400 million in MTB stock.
PNC Financial Services Group (PNC)
PNC Financial Services has more than $445 billion in assets. PNC shares are down about 30% year to date, and the company is not immune to the margin pressures affecting other banks. However, PNC sold a $17 billion stake in money manager BlackRock (BLK) in May, which helped shore up its balance sheet and provide financial flexibility for potential acquisitions. Net interest margin contracted 0.32% in the second quarter, but net interest income was stable because of 13% growth in earning assets. Berkshire owns $552 million in PNC stock, which pays a 4.2% dividend.
JPMorgan Chase & Co. (JPM)
JPMorgan Chase is the biggest U.S. bank by market cap, valued at more than $290 billion. Buffett made headlines by selling 62% of his JPMorgan investment in the second quarter, but Berkshire still held more than $2 billion of JPMorgan shares as of the end of the quarter. Buffett's selling may be a red flag to some investors, but JPMorgan has performed extremely well during the 2020 downturn. In fact, the megabank reported a 79% increase in trading revenue in the most recent quarter to a record $9.7 billion. JPM stock pays a 3.7% dividend.
Bank of New York Mellon Corp. (BK)
Bank of New York Mellon is a trust bank, which means it has a unique business model that includes managing cash for large investment funds, providing day-to-day funding for large corporations and serving as a fixed-income clearing firm. Instead of taking on credit risk by lending aggressively, the bank generates much of its income from transaction fees, and its clearing business is thriving, given the spike in market volatility this year. The stock is down about 30% in 2020, but Berkshire owns a $2.5 billion stake. BK stock pays a 3.6% dividend.
Buffett stocks paying strong dividends:
-- Kraft Heinz Co. (KHC)
-- Store Capital Corp. (STOR)
-- Suncor Energy (SU)
-- UBS Group (UBS)
-- M&T Bank Corp. (MTB)
-- PNC Financial Services Group (PNC)
-- JPMorgan Chase & Co. (JPM)
-- Bank of New York Mellon Corp. (BK)