5 December Buffett Dividend Dog Buys, 3 To Await

Foreword

Dan Burrows says in Kiplinger Investing:

The Berkshire Hathaway portfolio is a diverse set of blue chips and, increasingly, lesser-known growth bets. Here’s a look at every stock picked by Warren Buffett and his lieutenants.”

Any collection of stocks is more clearly understood when subjected to yield-based (dogcatcher) analysis, this Buffett/Berkshire batch is perfect for the dogcatcher process. Here is the December 23 data for 33 dividend-paying stocks in the Kiplinger-documented collection of 49 owned by Buffett through his Berkshire Hathaway (BRK.A) (BRK.B) firm as of 12/23/22.

Another resource consulted for this article was dogsofthedow.com which also keeps an ongoing spreadsheet of the Buffett/Berkshire stocks updated quarterly per BRK SEC filings, the next of which reports in February.

A rapid market recovery, after the Ides of March 2020 plunge, made the possibility of owning productive dividend shares reflecting this collection out of reach for first-time investors.

This December 2022 update shows that the following five top dogs of Berkshire stocks now live up to the dogcatcher ideal of paying annual dividends (from a $1K investment) exceeding its single share prices: Paramount Global (PARA); Ally Financial (ALLY); Citigroup (C); U.S. Bancorp (USB); HP Inc. (HPQ).

Three more are within $6.22 or 14% of the ideal: Bank of New York Mellon (BK); The Kraft Heinz (KHC); Jefferies Financial Group (JEF). Those three stocks show potential small price decreases that would pay dividends at current payout levels from $1k invested equalling their single share prices.

Actionable Conclusions (1-10): Analysts Estimated 19.78% To 50.81% Net Gains For Ten Top Buffett-Held Dividend Stocks Come December 2023

Five of these ten Buffett-held top dividend stocks by yield were also among the top ten gainers for the coming year based on analyst 1-year target prices. (They are tinted gray in the chart below). Thus, this yield-based forecast for these Buffett dogs was graded by Wall St. Wizards as 50% accurate.

Estimated dividends from $1,000 invested in each of these highest-yielding stocks and their aggregate one-year analyst median target prices, as reported by YCharts, produced the data points for the projections below. (Note: one-year target prices by lone analysts were not applied.) Ten probable profit-generating trades projected for December 23, 2023, were:

General Motors (GM) netted $508.14 based on the median of estimates from 21 analysts, plus dividends. The Beta number showed this estimate subject to risk/volatility 30% greater than the market as a whole.

Taiwan Semiconductor Manufacturing (TSM) was projected to net $409.08, based on dividends, plus the median of target price estimates from 11 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 5% less than the market as a whole.

Ally Financial was projected to net $394.05, based on the median of target estimates from 18 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 28% higher than the market as a whole.

Apple (AAPL) was projected to net $303.69, based on the median of target price estimates from 42 analysts plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 22% over the market as a whole.

Citigroup was projected to net $303.61 based on dividends, plus the median of target price estimates from 23 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 58% over the market as a whole.

Paramount Global was projected to net $290.10 based on dividends, plus the median of target price estimates from 25 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 50% greater than the market as a whole.

Bank of America (BAC) was projected to net $285.96, based on the median of target price estimates from 25 analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 38% greater than the market as a whole.

U.S. Bancorp was projected to net $238.10, based on a median of target price estimates from 23 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 3% under the market as a whole.

Celanese (CE) netted $212.70 based on the median of estimates from 22 analysts, plus dividends. The Beta number showed this estimate subject to risk/volatility 27% greater than the market as a whole.

Visa (V) was projected to net $197.75 based on a median of target price estimates from 31 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 5% under the market as a whole.

The average net gain in dividend and price was estimated at 31.43% on $10k invested as $1k in each of these ten stocks. These gain estimates were subject to average risk/volatility 25% greater than the market as a whole.

The Dividend Dogs Rule

Stocks earned the “dog” moniker by exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as “dogs.” More precisely, these are, in fact, best called, “underdogs”.

49 Buffett Holdings By Target Gains

33 Buffett Picks By Yield

Actionable Conclusions (11-20): 10 Top Buffett-Held Stocks By Yield Are The Dogs of Berkshire Hathaway

Top ten Buffett-held stocks selected 12/23/22 by yield represented six of eleven Morningstar sectors.

First place went to the lone communication services company, Paramount Global [1].

Five dogs from the financial services sector placed second through fourth, seventh, and ninth: Ally Financial [2] Citigroup [3], U.S. Bancorp [4], Jefferies Financial Group [7], and Bank of New York Mellon [9].

Next, the lone consumer defensive sector representative placed fifth, The Kraft Heinz [5].

One from the technology sector, placed sixth, HP Inc. [6]. The lone industrials stock placed eighth, United Parcel Service (UPS) [8].

Finally, taking tenth, was one from the energy sector, Chevron (CVX) [10], to complete the December Buffett/Berkshire top ten dividend dogs, by yield.

Actionable Conclusions: (21-30) Top-Ten November Berkshire/Buffett Dogs Showed 19.54%-50.75% Upsides, While (31) One Showed A Downside of -2.24%

To quantify top-dog rankings, analyst median price target estimates provided a “market sentiment” gauge of upside potential. Added to the simple high-yield metrics, analyst median price target estimates became another tool to dig out bargains.

Analysts Forecast A 7.82% Advantage For 5 Highest Yield, Lowest Priced, Of 10 Top Buffett-Collected Dividend Stocks To December 2023

Ten-top Buffett/Berkshire dividend dogs were culled by yield for this update. Yield (dividend/price) results provided by YCharts did the ranking.

As noted above, top ten Buffett-chosen dividend dogs screened 12/23/22 showing the highest dividend yields represented six of eleven Morningstar sectors.

Actionable Conclusions: Analysts Predicted 5 Lowest-Priced Of The Top Ten Highest-Yield Buffett-Held Dogs (31) Delivering 20.23% Vs. (32) 18.76% Average Net Gains by All Ten Come December 23, 2023

$5,000 invested as $1k in each of the five lowest-priced stocks in the top ten dividend Buffett-selected kennel by yield were predicted by analyst 1-year targets to deliver 7.82% more gain than $5,000 invested as $.5k in all ten. The second lowest-priced selection, Ally Financial, was projected to deliver the best analyst estimated net gain of 39.40%.

The five lowest-priced top-yield Buffett-backed dividend dogs as of December 23 were: Paramount Global; Ally Financial; HP Inc.; Jefferies Financial Group; The Kraft Heinz, with prices ranging from $16.66 to $40.52.

Five higher-priced Buffett-picked dividend dogs as of December 23 were: US Bancorp; Citigroup; New York Mellon; United Parcel Service; Chevron, whose prices ranged from $43.20 to $177.40.

The distinction between five low-priced dividend dogs and the general field of ten reflected Michael B. O’Higgins’ “basic method” for beating the Dow. The scale of projected gains, based on analyst targets, added a unique element of “market sentiment” gauging upside potential. It provided a here-and-now equivalent of waiting a year to find out what might happen in the market. Caution is advised since analysts are historically only 20% to 85% accurate on the direction of change and just 0% to 15% accurate on the degree of change (within 2.5%).

Afterword

If somehow you missed the suggestion of the four stocks ready for pick-up, and the emerging ideal picks at the start of the article, here is a reprise of the list at the end:

This December 2022 update shows that the following five top dogs of Berkshire stocks now live up to the dogcatcher ideal of paying annual dividends (from a $1K investment) exceeding its single share prices: Paramount Global; Ally Financial; Citigroup; U.S. Bancorp; HP Inc.

Three more are within $6.22 or 14% of the ideal: Bank of New York Mellon at 13.91%; The Kraft Heinz Co at 1.28%; Jefferies Financial Group at 0.33%. Those three stocks show price decrease percentages that would pay dividends at current payout levels from $1k invested equalling their single share prices.

Price Drops or Dividend Increases Could Get All Ten Dogs of Buffett Back to “Fair Price” Rates For Investors

The charts above retain the recent dividend amount and adjust share price to produce a yield (from $1K invested) to equal or exceed the single share price of each stock. As you can see, this illustration shows the five fair priced dogs in the top ten (PARA, ALLY, C, USB & HPQ), plus five out-of-bounds-priced stocks. The outliers need to trim prices between $0.33 and $102.06 to realize the 50/50 goal for share prices equalling dividend payouts from $10k invested.

The alternative, of course, would be for these companies to raise their dividends. That, of course, is a lot to ask in these highly disrupted, dollar-flooded, understaffed, short-supplied, and inflationary times.

Market action is the key. Mr. Market needs to drop up to 58% for all to become Buffett Ideal dividend dogs.

The net gain/loss estimates above did not factor in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of “dividends” from any investment.

The stocks listed above were suggested only as possible reference points for your Buffett/Berkshire batch stock purchase or sale research process. These were not recommendations.