Warren Buffett loves stocks that pay him dividends though he steadfastly refuses to allow Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) to reward its shareholders. Buffett contends he knows better than those investing alongside him how to deliver superior returns.

Although it sounds arrogant, he’s probably not wrong. Since taking over as chairman of Berkshire Hathaway in 1964, he has generated overall returns of 4,384,748% by the end of 2023. That’s a 19.8% compounded annual growth rate.

In contrast, the S&P 500 has generated returns at about half that rate, or 10.2%, for a total return of 31,233%. Buffett might get beat by other money managers from time to time, but no one has a cumulative record equal to the Oracle of Omaha.

He collected about $6 billion in dividend checks last year, but this year at least, it’s going to be a little bit less. After dumping a ton of Apple (NASDAQ:AAPL) stock last quarter, along with a number of other stocks he reduced or eliminated from the portfolio, Buffett is due to receive about $5.2 billion or so from the two dozen dividend-paying stocks in his portfolio.

About half of the total, or $2.6 billion worth, will come from the following three stocks.

Key Points About This Article:

• Warren Buffett loves stocks that pay dividends and he owns about two dozen income-generating companies.
• Just three of them account for about half of the total dividend payments Berkshire Hathaway will receive over the next 12 months, including one surprising stock.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Bank of America (BAC)

Even though Buffett sold about 15% of his stake in Bank of America (NYSE:BAC), it remains the biggest dividend payer Berkshire Hathaway owns. His 883 million shares will deliver around $918 million in annual income. Not a bad paycheck for simply holding onto a stock.

Although Buffett has been a long-term holder of Bank of America stock — he bought his first tranche bank in 2007 just before the global financial crisis — he hasn’t been especially enamored with the way American banks are run. 

Berkshire owns five different Japanese banks and Buffett has suggested American bank CEOs could learn something from their foreign counterparts. He pointed out that management was more restrained in enriching themselves and the Japanese banks were all far more shareholder-friendly than U.S. banks.

Buffett’s move to a large cash position by, in part, selling off Bank of America stock could suggest the Oracle is concerned about the economic situation and the financial industry’s position. The last time he possessed such a large cash horde was just before the banking industry crisis in 2008.

Occidental Petroleum (OXY)

On the surface, Occidental Petroleum (NYSE:OXY) should not be the second-biggest dividend stock in Buffett’s portfolio. Although he has been buying shares of OXY stock and now owns 255 million shares worth $14.1 billion (equal to a 27% stake in the oil and gas giant), Buffett also owns warrants to buy another 83.9 million shares for $5 billion. 

In total, the Oracle owns over 29% of Occidental Petroleum, making it the sixth largest holding in Berkshire Hathaway. Yet that only comes to $225 million in dividend payments. Where does he get the rest? From preferred stock.

In 2019, Occidental wanted to buy Anadarko Petroleum and Buffett loaned the oil stock $10 billion in exchange for 100,000 shares of its preferred stock. Those preferred shares pay Buffett an 8% dividend. While Occidental has been required to redeem the stock at regular intervals so that Buffett’s holdings have been reduced to $8.49 billion, the shares deliver an additional $679.2 million in dividends. That brings the income received to $903.8 million.

Coca-Cola (KO)

Number three on the dividend front is beverage giant Coca-Cola (NYSE:KO). The soda king sends Buffett $776 million in dividend checks every year. In total, the three companies contribute $2.6 billion annually to Berkshire Hathaway’s passive income haul. 

While individual investors can’t generate that kind of money, it shows the value of dividend stock investing. Getting paid to invest is one of the best ways to quickly build a rich retirement portfolio.

Buffett had been a big investor in rival PepsiCo (NASDAQ:PEP), but in the 1980’s a Coke executive famously sent Buffett a can of its new Cherry Coke and the Oracle was hooked ever since. He began buying Coke stock and eventually sold off his Pepsi position. Today Buffett owns 400 million shares, or 9.3% of the company, worth over $29 billion. 

Buffett hasn’t bought (or sold) Coca-Cola stock in years, preferring instead to just hold for the long-term. As soda tends to be an indulgence consumers will purchase regardless of economic conditions, it makes the beverage stock one to own in good times and bad.

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