Buffett’s Secret Portfolio Recipe
So you think you know Buffett’s secret investment strategy. What is it? Buffet is a value investor who buys companies at deep value. Ask this question to any investor in financial world and he/she would respond with this answer with a blink of an eye. That’s true and correct. But another significant characteristics of Buffett’s portfolio is dividend growth investing. Not much has been written about this aspect of Buffett’s portfolio. Let us take a little deeper look into Berkshire Hathaway’s (BRK) holdings and analyze them from dividend investing perspective.
As of 4Q 2008, BRK portfolio had a total of 60 companies. The total investments in top ten companies consist of approximately 85% of the portfolio while the remaining 15% is invested in 30 companies. Now, this could be viewed as a “highly concentrated portfolio” or “portfolio anchored to good stocks”. Has Buffett forgotten the meaning of diversification or he just does not believe in diversification per se?. The table below shows the top 10 holdings, their percentage in BRK portfolio, and dividends per share.
Buffett's Dividend Cash Flow
We can calculate the annualized total dividend based on share count and dividends per share. It can be observed that from top 10 holdings, BRK receives annualized dividend of USD 1.644 billion (as of end of 2008). It would be safe to assume that since last few years (perhaps 4 to 5 years) BRK’s portfolio companies have been provided dividends in excess of USD 1.0 billion. The other fact is Buffet did not initiate these investments in recent past. However, he may have continued to add to an existing position. We know that he started investing in KO, AXP, PG, WFC, and WSC in late 80s and early 90s. These are the companies that have consistently increased their dividends over the past 15 to 20 years. With those assumptions, we can say that these were Buffett’s investments in dividend growth companies. I would presume that the yield-on-cost for these investments would easily surpass 10 to 15% (depending upon timeline for additional investments).
It seems that Buffett has anchored his portfolio with dividend growth companies which provides consistently increasing cash flow.
So do you still believe Buffett is a value investor? Does Buffett evaluate value using company’s cash flow? What are your observations and thoughts?
buffett
It is widely know that Buffett is value investor. I have not read much about dividend growth investing. Dividends are very small in value, usually less than 3%, and worse investments than savings, Saving are 5%+. So why would one invest in stocks and take more risk?
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I think in recognizing Buffett ideology, media misses the point that he has lived in a booming US economy. Ever since US economy has been in trouble, i.e. 2000 onwards, Buffett has not done anything worth to note.
In addition, dividends may seem worthless, but they are an amazing cash machine. Read my post on “yield-on-cost” at http://www.theincomeportfolio.com/2009/03/measuring-progress-yield-on-cost/
Best Regards,
Excellant. Record maintained properly to substitute the subject. Appreciated.
Sherin
http://investinternals.blogspot.com
Sherin:
Thanks for stopping by. Glad to see you enjoyed reading the posts.
Best Regards,
Tip GUy,
Great insights into the portfolio of the oracle of omaha.Where did u manage to get hold of his portfolio:D
However,dividends are one of the major criterias no matter who it is.The sure shot way of generating passive income and moreover,a dividend rich stock speaks volumes bout the company’s potential.
However,the dividends have dried up recently,which is worrysome
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I would tend to agree dividends are drying up. I look at this as an opportunity to find last man (or team) standing. A company paying dividends in current environment (with sustainability) is the one which I am looking for. What could be better than present business environment we are in? I am happy that I do not have to make the judgment call. Business environment is doing that for me. All those Jackals in Lion clothes are getting exposed.
I couldn agree more.it is said tht turbulent winds seperate chaff from wheat.This market has sure rooted out some jackals,but there are gems who have been hurt too.But,i am sure wit the kind of fundamentals that these companies have,they will be back on the winning traack.
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