To The Moon

By Sean Williams

KEY POINTS

• The Oracle of Omaha's success can be at least partially attributed to his love of dividend stocks.
• These 10 holdings are on pace to generate over $100 million in annual dividend income for Buffett's company.

These passive income powerhouses will bring in between $101 million and $904 million annually for Berkshire Hathaway.

You could say Berkshire Hathaway($Berkshire Hathaway(BRK.B)$ )($Berkshire Hathaway(BRK.A)$ )CEO Warren Buffett knows a thing or two about making money.

Of the more than four dozen holdings in Berkshire Hathaway's portfolio, 10 are set to provide at least $100 million in passive income over the next year.

1. Chevron

The passive income kingpin in Buffett's portfolio is integrated oil and gas stockChevron($Chevron(CVX)$ ). Berkshire acquired nearly 121 million shares of the energy giant during the first quarter.

Then again, this is an integrated oil and gas giant, so it can always lean on the predictable cash flow from its midstream assets (pipelines and storage) or downstream refineries if commodity prices decline.

2. Occidental Petroleum

Interestingly, Buffett's two best dividend stocks, based on payout, areoil stocks.Occidental Petroleum($Occidental(OXY)$ )is expected to hand over more than $874 million to Berkshire Hathaway over the next year.

Similar to Chevron, Occidental Petroleum looks well-positioned to capitalize on crude oil prices hitting multidecade highs. Between Russia invading Ukraine and oil companies paring back their capital expenditures over the past two years, getting supply back into the market will be a challenge. That's a recipe for high oil prices to persist.

3. Bank of America

Warren Buffett loves bank stocks, so it's no surprise to seeBank of America($Bank of America(BAC)$ )as one of his best dividend stocks. The more than 1 billion shares of BofA held should translate into almost $868 million in annual dividend income.

Buffett tends to like banks because they're cyclical. Even though recessions are inevitable, they don't last very long. By comparison, economic expansions often last years. Disproportionately long periods of expansion allow bank stocks like Bank of America to reap the rewards of making loans and taking in deposits.

4. Apple

Tech behemothApple($Apple(AAPL)$ )is Berkshire Hathaway's largest holding and accounts for more than 38% of the company's invested assets. Based on an aggregate of roughly 911 million shares held, Buffett's company can expect $838.4 million in dividend income over the next year.

Were this not enough, Apple has repurchased almost $499 billion of its own stock since 2013.  Buffett has always been a big fan of Apple's capital return program.

5. Coca-Cola

Beverage stockCoca-Cola($Coca-Cola(KO)$ )is the Oracle of Omaha'slongest-tenured holding. A fixture in Berkshire Hathaway's portfolio since 1988, Coke has increased its base annual payout for 60 consecutive years.

Like Apple, Coca-Cola is also an extremely well-known brand. It's one of a handful of companies that can easily cross generational gaps to connect with users via holiday tie-ins, point-of-sale advertising, and social media campaigns.

6. Kraft Heinz

Even though it's been one of Warren Buffett's worst investments, packaged foods companyKraft Heinz($The Kraft Heinz Company(KHC)$ )is one of Berkshire's passive income superstars with a 4.1% yield.

On the other hand,Kraft Heinz's balance sheet remains unsightly. The company is lugging around a lot of debt, and there remains the possibility of additional goodwill writedowns. Without a lot of financial flexibility, reigniting excitement in Kraft Heinz's brands could be difficult.

7. American Express

If not for Coca-Cola, credit services companyAmerican Express($American Express(AXP)$ )would be Buffett's longest-held stock. A continuous holding since 1993, AmEx is on pace to generate more than $315 million in passive income.

What's more, AmEx has always had success attracting well-to-do clients. Individuals with higher incomes are less susceptible to economic downturns, and therefore less likely to alter their spending habits or fail to pay their bills.

8. U.S. Bancorp

Have I mentioned that Buffett lovesbank stocks? Regional bankU.S. Bancorp($U.S. Bancorp(USB)$ ), the parent of U.S. Bank, is another favorite that's set to bring in around $265 million in annual dividend income.

U.S. Bancorp has also donean excellent job of promoting digital banking. Since the beginning of 2020, the percentage of loan sales completed online or via mobile app has risen from 45% to 65%.  That's great news given that digital transactions are considerably cheaper for the company.

9. Citigroup

Yet another money-center bank that'll be piling on the passive income for Warren Buffett's company over the next year isCitigroup($Citigroup(C)$ ). Berkshire purchased more than 55 million shares of Citi in the first quarter, which should translate into north of $112 million in annual dividend income.

But Citi is alsoprofitable and incredibly inexpensive. The company generated $5.3 billion in income from operations before income taxes during the first quarter and is valued at just 54% of its book value.  Buffet loves a good value stock, and he might have one here with Citigroup.

10. Bank of New York Mellon

Finally, America's largest custodial bank,Bank of New York Mellon($Bank of New York Mellon(BK)$ ), rounds out Buffett's 10 best dividend stocks.

Perhaps thebiggest catalyst for Bank of NY Mellonis the Federal Reserve's shift to hawkish monetary policy. Higher interest rates should allow the company to recognize a significant boost in net interest revenue. For context, first quarter net interest revenue rose 7% from the prior-year period, and the Fed has only recently shifted its policy stance.  With multiple 50-basis-point rate hikes expected, BNY Mellon could see healthy top-and-bottom-line expansion.

Resource: the Motley Fool