By Philip van Doorn, MarketWatch
Berkshire Hathaway CEO Warren Buffett published his annual letter to shareholders Saturday. Each year’s letter is a must-read for investors, and the latest edition took a positive tone, which really is a relief amid the daily flow of gloom-and-doom headlines.
Here’s some of Buffett’s wisdom from the latest letter:
“In America, gains from winning investments have always far more than offset the losses from clunkers. (During the 20th century, the Dow Jones Industrial Average — an index fund of sorts — soared from 66 to 11,497, with its component companies all the while paying ever-increasing dividends.)”
It’s that last bit we want to focus on here. Following up on our exhaustive look at the S&P 500 Dividend Aristocrats and the S&P High-Yield Dividend Aristocrats, we’re taking a dive into Buffett’s holdings among those groups.
The S&P 500 Dividend Aristocrats Index /zigman2/quotes/210598428/delayed XX:SP50DIV -2.65% comprises the 50 S&P 500 companies that have raised their regular dividend payouts for at least 25 consecutive years.
The S&P High-Yield Dividend Aristocrats Index /zigman2/quotes/210599901/delayed XX:SPHYDA +0.94% consists of components of the S&P Composite 1500 that have raised their dividends for at least 20 consecutive years. This is made up of 107 stocks, including all of the S&P 500 Dividend Aristocrats.
Paying “ever-increasing dividends” reflects not only success, but optimism — similar to Buffett’s. And as we discussed in the previous article, both Dividend Aristocrats indices have greatly outperformed the S&P 500 over the past 10 years.
Here are the six S&P High-Yield Dividend Aristocrats held by Berkshire Hathaway Inc. /zigman2/quotes/200060694/composite BRK.B +0.83% , according to the company’s most recent 13F filing , as of Dec. 31, with other data as of the market close Feb. 29:
|Company||Ticker||Dividend yield||Price/consensus 2016 EPS estimate|
|AT&T Inc.||/zigman2/quotes/203165245/composite T||5.20%||13.0|
|Coca-Cola Co.||/zigman2/quotes/209159848/composite KO||3.25%||22.3|
|International Business Machines Corp.||/zigman2/quotes/203856914/composite IBM||3.97%||9.7|
|Johnson & Johnson||/zigman2/quotes/201724570/composite JNJ||2.85%||16.2|
|Procter & Gamble Co.||/zigman2/quotes/202894679/composite PG||3.30%||22.2|
|Wal-Mart Stores Inc.||/zigman2/quotes/207374728/composite WMT||3.01%||16.1|
All of those companies, except for International Business Machines Inc. /zigman2/quotes/203856914/composite IBM +0.73% are included in the S&P 500 Dividend Aristocrats. IBM is part of the S&P High-Yield Dividend Aristocrats.
This chart shows how all six have performed over the past 10 years:
Here’s a comparison of average compounded annual returns, with dividends reinvested, for the group, plus Berkshire Hathaway:
|Company||Ticker||Total return - YTD through Feb. 29||Total return - 2015||Average total return - 5 years||Average total return - 10 years|
|AT&T Inc.||/zigman2/quotes/203165245/composite T||8.9%||8.3%||11.2%||8.6%|
|Coca-Cola Co.||/zigman2/quotes/209159848/composite KO||0.4%||5.1%||9.3%||10.7%|
|International Business Machines Corp.||/zigman2/quotes/203856914/composite IBM||-3.8%||-11.4%||-1.9%||7.2%|
|Johnson & Johnson||/zigman2/quotes/201724570/composite JNJ||3.2%||1.2%||14.9%||9.5%|
|Procter & Gamble Co.||/zigman2/quotes/202894679/composite PG||2.0%||-10.0%||8.4%||6.0%|
|Wal-Mart Stores Inc.||/zigman2/quotes/207374728/composite WMT||8.2%||-26.6%||7.7%||6.2%|
|Berkshire Hathaway Inc. Class B||1.6%||-12.1%||9.0%||8.8%|
So four of six of Berkshire’s Dividend Aristocrats have beaten the S&P 500’s average compounded annual return over the past 10 years, and Berkshire’s Class B shares have done so as well.
A useful gauge of a company’s recent performance is how well it has increased sales per share because, unlike earnings, one-time accounting charges don’t affect it:
|Company||Ticker||Sales per share - past 12 months||Sales per share - year earlier||Growth of sales per share|
|AT&T Inc.||/zigman2/quotes/203165245/composite T||$25.95||$25.37||2%|
|Coca-Cola Co.||/zigman2/quotes/209159848/composite KO||$9.94||$10.32||-4%|
|International Business Machines Corp.||/zigman2/quotes/203856914/composite IBM||$83.20||$92.49||-10%|
|Johnson & Johnson||/zigman2/quotes/201724570/composite JNJ||$24.95||$25.94||-4%|
|Procter & Gamble Co.||/zigman2/quotes/202894679/composite PG||$24.14||$28.26||-15%|
|Wal-Mart Stores Inc.||/zigman2/quotes/207374728/composite WMT||$149.68||$149.77||0%|
|Berkshire Hathaway Inc. Class B||$84.09||$78.47||7%|
Except for AT&T Inc. /zigman2/quotes/203165245/composite T 0.00% and Berkshire Hathaway itself, this is a rather grim set of numbers. Perhaps it shouldn’t be a surprise, with half of the 10 S&P 500 sectors showing declines in fourth-quarter earnings per share.
Here’s a summary of how Wall Street analysts think about Buffett’s six Dividend Aristocrats and Berkshire Hathaway:
|Company||Ticker||Share of analysts rating the shares ‘buy’||Closing price - Feb. 29||Consensus price target||Implied 12-month upside|
|AT&T Inc.||/zigman2/quotes/203165245/composite T||56%||$36.95||$37.85||2%|
|Coca-Cola Co.||/zigman2/quotes/209159848/composite KO||50%||$43.13||$46.52||8%|
|International Business Machines Corp.||/zigman2/quotes/203856914/composite IBM||28%||$131.03||$133.09||2%|
|Johnson & Johnson||/zigman2/quotes/201724570/composite JNJ||52%||$105.21||$108.83||3%|
|Procter & Gamble Co.||/zigman2/quotes/202894679/composite PG||42%||$80.29||$84.09||5%|
|Wal-Mart Stores Inc.||/zigman2/quotes/207374728/composite WMT||17%||$66.34||$64.33||-3%|
|Berkshire Hathaway Inc. Class B||83%||$134.17||$158.91||18%|
The ratings and 12-month targets of sell-side analysts provide only short-term outlooks. Dividend Aristocrats, and Berkshire Hathaway for that matter, should be considered by investors who can commit several years. And if a company is not favored by Wall Street this year, keep in mind that Buffett has said over and over again that he loves to jump in when everyone else is afraid.