Investing
6 Warren Buffett Dividend Stocks That Can Rocket Higher as Interest Rates Rise Again
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If any investor has stood the test of time, it is Warren Buffett. For years, the “Oracle of Omaha” has had a rock-star-like presence in the investing world. His annual Berkshire Hathaway shareholders meeting draws literally tens of thousands of loyal fans who are also investors. Known for his long buy-and-hold strategies, and with a massive portfolio of public and private holdings, he remains one of the preeminent investors in the entire world.
The Federal Reserve has stated its intent to have the federal funds rate at 4.75% to 5.00% by the end of the year, or early next year. Wednesday’s 75-basis-point increase and another 50-basis-point raise in December should get us close to the finish line, with another 50 basis points, or perhaps even more in 2023, still to drop.
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That does not bode well for some stocks, like utilities and real estate investment trusts. For financials, it means one thing: increased net-interest-income earnings. Net interest income is a performance measure that reflects the difference between the revenue generated from a bank’s interest-bearing assets and the expenses associated with paying on its interest-bearing liabilities. Assets that can earn interest for banks can range from mortgages to auto, personal and commercial real estate loans.
We screened the Berkshire Hathaway portfolio for the top banks and financial institutions and found six companies likely applauding the Federal Reserve’s increase in the fed funds rate. All six pay solid dividends and are rated Buy across Wall Street. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Ally Financial
The bank with no buildings is poised to have a very solid fourth quarter and 2023. Ally Financial Inc. (NYSE: ALLY) is a digital financial services company that provides various digital financial products and services to consumer, commercial and corporate customers primarily in the United States and Canada.
Its Automotive Finance Operations segment offers automotive financing services, including providing retail installment sales contracts, loans and operating leases, term loans to dealers, financing dealer floor plans and other lines of credit to dealers, warehouse lines to automotive retailers and fleet financing. It also provides financing services to companies and municipalities for the purchase or lease of vehicles and vehicle-remarketing services.
The Insurance Operations segment offers consumer finance protection and insurance products through the automotive dealer channel and commercial insurance products directly to dealers. This segment provides vehicle service and maintenance contracts and guaranteed asset protection products, and it underwrites commercial insurance coverages, which primarily insure dealers’ vehicle inventory.
The Mortgage Finance Operations segment manages consumer mortgage loan portfolio that includes bulk purchases of jumbo and low-to-moderate income mortgage loans originated by third parties, as well as direct-to-consumer mortgage offerings.
The Corporate Finance Operations segment provides senior secured leveraged cash flow and asset-based loans to middle market companies, leveraged loans and commercial real estate products to serve companies in the health care industry. The company also offers commercial banking products and services. In addition, it provides securities brokerage and investment advisory services. The company was formerly known as GMAC and changed its name in May 2010.
Ally Financial stock investors receive a 4.34% dividend. Citigroup has a $34 target price, and the consensus target is $33.34. Wednesday’s close at $26.66 was down almost 4% for the day.
American Express
This stock has backed up recently and is offering the best entry point since late last year, despite posting solid third-quarter results. American Express Co. (NYSE: AXP) provides charge and credit payment card products and travel-related services worldwide. Its products and services include payment and financing products network services accounts payable expense management products and services, and travel and lifestyle services.
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The company’s products and services also comprise merchant acquisition and processing, servicing and settlement, point-of-sale marketing and information products and services for merchants, and fraud prevention services, as well as the design and operation of customer loyalty programs. It sells its products and services to consumers, small businesses, midsized companies and large corporations through mobile and online applications, third-party vendors and business partners, direct mail, telephone, in-house sales teams and direct response advertising.
Shareholders receive a 1.41% yield. Wells Fargo’s price target on American Express stock is $170. The consensus target is $168.38, and shares ended trading on Wednesday at $143.50 apiece.
Bank of America
This is one of the biggest banks in the country, and Buffett owns a stunning 1.1 billion of its shares. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
Bank of America has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
Investors receive a 2.43% dividend. The $51 Barclays target price is well above the $40.96 consensus target. Bank of America stock closed at $36.09 on Wednesday.
24/7 Wall St.BNY Mellon
Founded in 1784, this is the oldest company in the Fortune 500. Bank of New York Mellon Corp. (NYSE: BK) provides a range of financial products and services in the United States and internationally. The company operates through the following three segments.
The Investment Service segment offers custody, trust and depositary, accounting, exchange-traded funds services, middle-office solutions, transfer agency, services for private equity and real estate funds, foreign exchange, securities lending, liquidity/lending services, brokerage and data analytics, clearing, investment, wealth and retirement solutions, technology and enterprise data management, trading, corporate trust, depositary receipts, payments, foreign exchange, liquidity management, receivables processing and payables management, trade finance and processing, collateral management and tri-party services.
The Investment and Wealth Management segment provides diversified investment management strategies and distribution of investment products, investment management, custody, wealth and estate planning, private banking, investment and information management services.
BNY Mellon’s Other segment engages in the leasing, corporate treasury, derivative and other trading, corporate and bank-owned life insurance, renewable energy investment and business exit activities. It serves central banks and sovereigns, financial institutions, asset managers, insurance companies, corporations, local authorities and high net-worth individuals and family offices.
The dividend yield here is 3.50%. Citigroup’s $50 price target is a Wall Street high. The consensus target for Bank of New York Mellon stock is $47.77 and Wednesday’s last trade came in at $42.04 per share.
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Citigroup
This top bank stock has bounced nicely off the lows, and Warren Buffett bought a massive $2.5 billion worth of shares back in the summer. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations, governments a broad range of financial products and services.
Citigroup offers services such as consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. It operates and does business in more than 160 countries and jurisdictions in North America, Latin America, Asia and elsewhere.
Trading at a still very cheap 8.98 times estimated 2022 earnings, this stock looks very reasonable in what remains a volatile stock market and in a sector that has dramatically lagged.
Citigroup stock comes with a 4.41% dividend. Oppenheimer has a target price of $79, also a Wall Street high. The $56.47 consensus target is closer to Wednesday’s ending share price of $45.55.
U.S. Bancorp
This top super-regional bank is among the higher-paying dividend bank stocks. U.S. Bancorp (NYSE: USB) provides various financial services in the United States through a network of 2,434 banking offices, principally operating in the Midwest and western regions of the United States, as well as through online services and a network of 4,232 ATMs.
The company offers depository services, including checking accounts, savings accounts and time certificate contracts; lending services, such as traditional credit products; and credit card services, lease financing and import/export trade, asset-backed lending, agricultural finance and other products. It also provides ancillary services comprising capital markets, treasury management and receivable lock-box collection services to corporate customers; and a range of asset management and fiduciary services for individuals, estates, foundations, business corporations and charitable organizations.
In addition, U.S. Bancorp offers investment and insurance products to its customers principally within its markets, as well as fund administration services to a range of mutual and other funds. The company also provides corporate and purchasing card and corporate trust services, and merchant processing services, as well as cash and investment management, ATM processing, mortgage banking and brokerage and leasing services.
Shareholders receive a 4.48% dividend. U.S. Bancorp stock has a $64 price objective at Oppenheimer. The consensus target is $51.34, and shares closed on Wednesday at $41.75.
Financial stocks have performed horribly all year, and with the prospects for more good earnings in the fourth quarter and in 2023, it makes sense to add the top Warren Buffett holdings. With earnings for the third quarter out of the way, it makes sense to start buying partial positions now and wait to see if the market takes another leg down in November.
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