Where Buffett Is Finding The Market’s Best Yields

In today’s world of high-frequency, short-term trading, many funds have sprung up that take positions based purely on statistics and for mere seconds (or less) at a time. Fundamentals get thrown out of the window; long-term appreciation and dividends are often never considered.

#-ad_banner-#Traditional long/short hedge funds are still generating impressive returns using tried-and-true methods, however. Heavy research into valuation and commitment to investment ideas over a greater horizon will never go out of style. This type of investing mantra is suitable for the great majority of investors as well.

Getting a peek into that research can be done each quarter when funds release their long positions in a filing called a Form 13F. While 13F data has its pros and cons, following managers who have demonstrated performance over a long-term horizon can lead to profitable investments.

Warren Buffett, esteemed investor, founder and the largest stakeholder of Berkshire Hathaway (NYSE: BRK), is the polar opposite of a short-term trader. The Oracle of Omaha is a legendary buy-and-hold investor, which is why his filings can be so insightful.

I’ve pored over Berkshire Hathaway’s 13Fs spanning the last 12 quarters with a few criteria in mind.

First, find big-cap stocks that have had a home in the fund’s portfolio for three years or longer. Second, pick out large dividend-payers (great than a 3% yield) with a history of yield growth. Finally, whittle the results down to three stocks from different industries for diversification purposes.

At 3.5%, General Electric (NYSE: GE) offers the highest dividend yield of the stocks in my screen. The company is currently undergoing significant internal change, looking to file an IPO for its consumer finance unit in the coming months.

   
  The Oracle of Omaha is a legendary buy-and-hold investor, which is why his filings can be so insightful.  
     

GE Capital, as it is known, accounts for nearly half of the company’s operating earnings. The spin-off could unlock billions in value for GE shareholders and reduce credit and liquidity risk overall. On a performance note, the stock has returned 25% in the past three years, not including dividends. While not drastic, the slow and steady growth is respectable when combined with the dividend payout.

As many investors know, the Coca-Cola Co. (NYSE: KO) is one of Buffett’s most prolific holdings.

Since 1988, Berkshire Hathaway has poured $16.5 billion into Coca-Cola, making it the fund’s second-largest position at 15.8%, taking a backseat only to Wells Fargo’s (NYSE: WFC). The 400 million shares owned have steadily increased in value over the years since he began purchasing the stock in 1989, registering a modest gain of 18.6% in the past three years. Buffett still has high hopes for the brand, citing that 3% of the liquids that the earth’s population drinks are Coca-Cola products. India and China are being targeted heavily in the coming years, with a portion of the company’s $1 billion in marketing efforts going to those emerging markets as 2016 approaches.

Procter & Gamble (NYSE: PG) was a standout pick in my screen, primarily due to its yield of 3.1% that has been growing since 1957. The consumer goods staple faces similar challenges to Coca-Cola in that its global presence is subject to currency pressures, which recently accounted for a drop in fiscal second-quarter 2014 earnings. However, PG has built a vast portfolio with brand names recognized worldwide, bolstering its ability to consistently pay and increase its dividend. The stock has seen performance similar to GE looking back three years, prompting Buffett to take profits and lighten his position slightly over the study period.

Warren Buffett’s Top 10 Holdings

Risks to Consider: Despite being aware of Buffett’s investing approach, one should use his disclosed portfolio as a framework. Berkshire Hathaway has the solvency and time to see investments through good times and bad. Also, take note that all dividends were determined at today’s dates, so they may have carried different yields in the past.

Action to Take –> Are any of the names overly surprising? Not necessarily, but if you have been on the lookout for conservative, high-income investments, consider these three names to add to your portfolio. Keep long-term appreciation in mind, but view the dividend payouts as consistent income or as opportunities to reinvest. Both GE and PG are already past their ex-dividend dates, but Coca-Cola will be trading ex-dividend on March 12, leaving time for investors to still get in if looking to take advantage of the upcoming payout.

P.S. WFC is a great stock to buy and hold for a long time, but we know the 2.5% yield won’t be enough for some yield-hungry investors… That’s why we’ve put together a special report on a “perpetual income” asset class that gives normal investors a chance to invest in high-income-producing assets — ones that used to be exclusively available to the rich — and earn yields as high as 12%. Even better, it can take as little as $500 to get started. If you haven’t seen it, I urge you to check it out now by clicking here.