If any investor has stood the test of time, it is Warren Buffett, and with good reason. For years, the “Oracle of Omaha” has had a rock-star-like presence in the investing world, and his annual Berkshire Hathaway Inc. (NYSE: BRK-B) shareholders meeting draws thousands of loyal investors. This year’s meeting ended with a thud as Buffett announced that he would step down as CEO at the end of this year. He assured the public he would still be going into the office, and you can bet his advice on any big portfolio ideas will be heeded and appreciated.
For younger investors or those on a tight budget, investing in stocks to generate consistent passive income can be daunting because many top dividend stocks trade at prices ranging from $25 to over $100 per share. Realizing a significant return on investment can be challenging with a small investment capital base of $1,000. When building a stock portfolio, the most critical ingredient for success is getting started early. Regardless of how much money you begin with, if you continue to add to the pot and reinvest your dividends to buy more shares, there is a good chance for long-term success.
We screened Berkshire Hathaway’s holdings for companies that pay dependable dividends and can deliver substantial total returns if their share prices rise over time. We found three that appear to be great ideas for those with limited investing capital. All three will pay investors a substantial dividend, and all are suitable for growth and income investors on a limited budget. All three are rated ‘Buy’ by Wall Street firms.
Why do we cover Warren Buffett’s stocks?
There are few investors with the results and reputation that Buffett has garnered over the past 60 years. While investing has evolved over the past half-century, buying good companies with products and services recognized worldwide and paying dividends will always remain a timeless approach.
Ally Financial
The former GMAC posted strong results for the quarter and offers investors a solid 3.11% dividend. Ally Financial Inc. (NYSE: ALLY) is a financial services company that posted adjusted earnings per share of $1.15, significantly beating the analyst consensus of $1.00. Revenue for the quarter reached $2.17 billion, beating estimates of $2.12 billion. Adjusted earnings more than doubled from $0.43 per share in the same quarter last year.
The company’s segments include:
- Automotive Finance operations
- Insurance operations
- Corporate Finance operations
The Automotive Finance operations segment provides automotive financing services to consumers, automotive dealers and retailers, companies, and municipalities.
Its Insurance operations segment operates as a complementary, automotive-focused business, offering both consumer finance protection and insurance products sold primarily through the automotive dealer channel, as well as commercial insurance products sold directly to dealers.
The Corporate Finance operations segment provides senior secured asset-based and leveraged cash flow loans to U.S.-based middle-market companies, with a focus on businesses owned by private equity sponsors.
Ally Financial also includes a robust corporate finance business that offers capital for equity sponsors and middle-market companies.
Citigroup has a Buy rating with a target price of $70.
Kraft Heinz
This is North America’s third-largest food and beverage company and fifth-largest globally. Even in difficult times, everybody needs to eat, and this company consistently benefits while paying a substantial 6.47% dividend. Kraft Heinz Co. (NYSE: KHC) was formed via the merger of H.J. Heinz and Kraft Foods. It manufactures and markets food and beverage products worldwide through its eight consumer-driven product platforms:
- Taste Elevation
- Easy Ready Meals
- Hydration
- Meats
- Cheeses
- Substantial Snacking
- Desserts
- Coffee and other grocery products
The company has two reportable segments defined by geographic region: North America and International Developed Markets.
Its other segments, West and East Emerging Markets (WEEM) and Asia Emerging Markets (AEM), are combined and reported as Emerging Markets. It manufactures its products from a wide variety of raw materials.
Kraft Heinz brands include:
- Kraft
- Oscar Mayer
- Heinz
- Philadelphia
- Lunchables
- Velveeta
- Ore-Ida
- Capri Sun
- Maxwell House
- Kool-Aid
- Jell-O
- Golden Circle
- Wattie’s
- Plasmon
- ABC
- Master
- Quero
- Pudliszki
The company’s products are sold through its sales organizations and independent brokers, agents, and distributors.
The Kraft Heinz Company announced recently that its Board of Directors has unanimously approved a plan to separate the Company into two independent, publicly traded companies through a tax-free spin-off. The separation is designed to maximize Kraft Heinz’s capabilities and brands while reducing complexity, allowing both new companies to deploy resources toward their distinct strategic priorities more effectively. This focus will enable stronger performance while preserving the scale to compete and in today’s environment.
DZ Bank has a Strong Buy rating, but we could not find a target price.
Sirius XM
The satellite radio giant is a relatively recent addition to the Berkshire Hathaway portfolio, and Warren Buffett has continued to increase his stake over the past year. Sirius XM Holdings Inc. (NASDAQ: SIRI) is an audio entertainment company in North America and pays a rich 4.99% dividend.
The company has a portfolio of audio businesses, including its flagship subscription entertainment service SiriusXM; the ad-supported and premium music streaming services of Pandora; an expansive podcast network; and a suite of business and advertising solutions.
Its segments include:
- Sirius XM
- Pandora and Off-platform
The Sirius XM segment offers a variety of content, including music, sports, entertainment, comedy, talk, news, traffic, and other channels, as well as podcasts and infotainment services, in the United States for a subscription-based fee.
Sirius XM’s packages include live, curated, and specific exclusive and on-demand programming.
The Pandora and Off-platform segment operates a music, comedy, and podcast streaming discovery platform, offering a personalized experience for each listener, wherever and whenever they want to listen, across mobile devices, vehicle speakers, and connected devices.
Guggenheim has a Buy rating with a $29 target price.
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