Diving Deep into Buffett’s Top 5 Stocks
With the celebration of his 86 birthday this past week, Warren Buffett continues to light in the public and have his finger on the pulse of the economy. In honor of the greatest investor of all time, it was appropriate to salute his impact on American business and his illustrious career. Buffett may be known more for his stock investing, but his company Berkshire Hathaway has grown into a multifaceted conglomerate that owns companies that we all probably use every day.
Over the decades of investing in businesses and stocks, Buffett has amassed a personal net worth of approximately $61B. This is absolutely ridiculous to imagine compounding so well that someone is able to accumulate such a milestone. He did benefit from an explosion of American business successes that lead to his stock portfolio growing at such an accelerated pace. But there is no denying the intelligence and skill that one must possess in order to accomplish such a feat. So he should be given the utmost credit for that.
The objective of this post is to dive deep into the top five (5) holding positions by Buffett’s company. The top five companies make up approximately 70% of the overall stock portfolio. Two (2) are related to the food and beverage industry, two (2) are associated with the financial sector, and one (1) is a long-standing technology giant. So much for the wide-spread diversification many “experts’ preach. Buffett doesn’t believe in over diversification for the simple reason it can diminish the overall portfolio’s return by offsetting good stocks with mediocre stocks. I totally agree.
Kraft Heinz Company (KHC)
The merger between Kraft Foods and Heinz Company took place in 2015, which Buffett was a part of the marriage. Now Kraft Heinz Co., it is the number 5 ranked food and beverage corporation in the world. Some notable brands under the corporation besides Kraft and Heinz are: Oscar Mayer, Planters, Velveeta, Philadelphia, Maxwell House, Capri Sun, Kool-Aid, Jell-O, etc. Employees of the corporation spread throughout over 40 countries. Eight (8) brands reel in over $1B in retail sales per year.
KHC is the largest holding position in the portfolio, with a percentage of 22.21%, it takes up nearly a quarter of the portfolio’s total value. Being one of the largest shareholders, Berkshire holds 325,634,818 shares as of June 30, 2016. With that in mind and an annual dividend of $2.40, its stake is pulling in an estimated $781.5M in dividend income per year. Based on the second quarter closing those shares represented a value of $28.8B. Although this is a relatively new position, Buffett expects to hold it for many decades. Plus, the stock has risen 23% year to date.
Wells Fargo & Company (WFC)
Competing for the number one spot in the banking industry, Wells Fargo has seen long-standing consistency over the decades. According to Forbes, it is the 10th largest public company in the world. Buffett’s stake is approximately 10% of the overall company and to continue to build the position he must receive clearance from the Federal Reserve. Unlike other industries, the banking area has restrictions on the amount of ownership a company can hold on a bank. The fear is the potential corruption or takeover of a major financial institution.
WFC is the second largest stock in the portfolio with a 17.50% piece of the overall pie. This position contains more shares of a company than any other stock in the portfolio with 479,704,270 shares at a value of $22.7B. Although the share count is much higher than any other stock, its annual dividend income isn’t the highest, but $729.1M isn’t bad. The only downside to the position is its current year to date return of -6.5%, but it’ll surely bounce back.
The Coca-Cola Company (KO)
One of Buffett’s most cherished and product consumed company stock is Coca-Cola. He has held the large holding since the 1980s, where he became to accumulate shares in 1988. Still to this date he claims to drink a few Cherry Cokes per day. Coca-Cola owns 20 brands that bring in at least $1B in sales per year. A few notable companies that Coca Cola owns are: Dasani, FUZE, Glaceau VitaminWater, Honest Tea, Minute Maid, Powerade, Simply Orange, and Sprite.
In years past, KO was the number one spot in relation to the portfolio’s market value. Today it takes up 13.97% of the overall portfolio with an even, but enormous 400,000,000 shares. Over the past three (3) decades the position has grown to an estimated value of $18.1B. Since the company started issuing dividends over 50 years ago, it has grown every single year, where Buffett’s annual share is now $560M. KO is a good example of a value stock where steady worth increases and the year to date return shows that with a 1.1% gain.
International Business Machines Corporation (IBM)
IBM was revolutionary in the technology industry. There was a time when their brand was front and center of the personal computer arena. Today the company ranks 5th in brand value amongst all technology brands. Buffett typically buys long-standing companies that have continued to grow and innovate over decades, and this is what he’s found in IBM. I mean the company helped put the first man on the moon.
Years before acquiring the hefty number of shares in IBM, Buffett was never a fan of technology stocks because very few stood around for decades at a time. Well this technology stock represents 9.50% of the overall portfolio. With just a modest 80,232,303 shares (compared to the other 4 holdings) it holds a value of $12.3B. Over the past few years it has had its downs, but year to date it has risen 15.4%. Also, bringing in $449.3M annually in dividend payments can soften any declines.
American Express Company (AXP)
The oldest relationship Buffett has with a major stock holding dates back to the 1960s when it comes to AmEx. The brand is one of the world’s most recognizable with its reach globally stronger than any other financial services company. Started as a traveler’s card issuer, it now services credit cards in over 180 countries. This stock is a prime example of Buffett’s famous stance on the investing holding period – forever.
Even though it’s portfolio stake is lower than the top four companies at 7.10%, positive price gains over the next several months to couple of years the value will jump into the $10B club. Currently with 151,610,700 shares its market value is approximately $9.2B. The annual dividend income for the AmEx stake pours in an estimated $175.9M. Due to its recent end of a long time relationship with a retail giant the stock has seen a -5.7% drop this year.
Think of these totals before ever considering Buffett as not the greatest investor of all time. Four of the five holdings carry over $10B in value with the total of all five at $91B. As you can see Buffett loves solid dividend paying stocks. The total annual dividends are nearly $2.7B. These enormous dividend payouts simply allow him to reinvest at a substantial pace and compound aggressively. And to think all five companies have dividend growth track records, so these totals will only rise over years.