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2 Dividend Aristocrats to Borrow from Warren Buffett's Portfolio

Barchart - Mon Apr 15, 9:20AM CDT

Berkshire Hathaway (BRK.B) Chair Warren Buffett is arguably the best-known value investor of all time, and the “Oracle of Omaha's" knack for picking winners is more relevant than ever in the roller-coaster economy of 2024. Warren Buffett's investment playbook, favoring firms with a solid earnings base and a history of reliable dividend payouts, has become a lighthouse for those adrift in the stormy seas of the market. This strategy, which prioritizes enduring value over fleeting gains, not only solidifies Buffett's status as an investment legend, but also serves as a compass for navigating these uncertain times.

Among the current lineup of Buffett stocks, two names in particular stand out for investors seeking passive income. Not only are these two stocks among the top five holdings in Berkshire's equity portfolio, but they've also consistently increased their dividends for over a quarter-century - making them bona fide Dividend Aristocrats. This impressive streak of steadily rising shareholder payouts underscores the companies' resilient business models, financial health, and steadfast dedication to rewarding investors, making it easy to see why they're Buffett picks.

With inflation still stubbornly hot, Fed rate cuts at risk, and geopolitical tensions flaring, here's a closer look at these two Dividend Aristocrats.

Dividend Aristocrat #1: Coca-Cola Company

Coca-Cola (KO), the iconic beverage giant, has been serving up smiles across the globe for over a century with its fizzy soft drinks, refreshing waters, and juicy offerings. More than just a household name, KO has also carved out a spot in the hearts of investors, especially those on the hunt for dependable dividend income. As a proud member of the Dividend Aristocrats club, Coca-Cola isn't just about quenching your thirst; it's about pouring a steady stream of returns into shareholder pockets.

The company's dedication to its shareholders shines through its remarkable dividend track record. For an impressive 62 years running, Coca-Cola has upped its dividend. That includes 2024, when KO bumped its quarterly dividend to $0.485 per share, making for an annual payout of $1.94 per share. This 5.4% hike from the previous year is a testament to KO's solid financial footing and its commitment to sharing the wealth. 

Sporting a dividend yield of 3.29%, Coca-Cola stands tall as an enticing option for those looking to generate passive income on their investments. And with a payout ratio holding steady at 74.22%, investors can rest easy knowing the company's dividend is on solid ground.

When it comes to the stock's performance, Coca-Cola has been quiet so far in 2024, and is nearly unchanged on a YTD basis. However, the shares are up 11% from last October's 52-week low. The company is valued at $251 billion by market cap.

Bolstered by a strong 2023 financial showing, including a 7% jump in net revenue to $10.8 billion for Q4 and a 13% surge in full-year EPS to $2.47, Coca-Cola is well-positioned for continued dominance in the global beverage space, led by its nearly unparalleled brand recognition and pricing power. Looking ahead, analysts are expecting EPS growth of 4.5% in fiscal year 2024, followed by 7.1% growth in fiscal 2025.

Backing up its dividend commitments, Coca-Cola boasts robust cash flow, with $11.6 billion in operating cash flow and $9.75 billion in free cash flow for 2023. This financial muscle is key to sustaining dividends and fueling future growth.

The analyst community is buzzing positively about Coca-Cola, with the consensus rating KO stock a “strong buy.” Out of 17 analysts, 12 are all in with a “strong buy,” one leans towards a “moderate buy,” and four say it's a “hold.”

With a mean target price of $66.07, this group is targeting potential upside for KO of about 12.6% from current levels.

Dividend Aristocrat #2: Chevron Corporation

As an all-in-one energy powerhouse, Chevron (CVX) has got its hands in every step of the process, from digging up and producing oil to refining it and getting it to market. Its global reach and strategic bets highlight its dedication to powering the world while also powering shareholder returns with solid dividends.

The company recently bumped up its quarterly dividend to $1.63 per share, pushing the annual payout to $6.52. This increase marks the 38th year in a row of dividend growth, solidifying Chevron's rep as a Dividend Aristocrat. With a dividend yield of 4.03%, and a payout ratio of 53.05%, Chevron looks serious about delivering consistent and sustainable value to its shareholders.

Chevron stock has been rising with oil prices lately, up 8.3% over the last three months. The stock is valued at $295 billion by market cap.

Operationally, Chevron's hitting high notes, especially with its record-breaking 867,000 barrels of oil equivalent per day (boepd) production in the Permian Basin during Q4 2023. The company's laser focus on this key area is on track to boost production to 1 million boepd by 2025, underlining Chevron's growth ambitions.

Financially, Chevron posted $21.3 billion in earnings for 2023, with $2.3 billion of that coming in Q4. For the full fiscal year 2024, analysts are expecting Chevron's EPS to edge up to $13.24, followed by 17% growth to $15.50 in fiscal year 2025.

Chevron returned a record $26.3 billion to shareholders last year via dividends and buybacks, and still ended the year with a cash balance of over $9.2 billion.

The analyst crowd is pretty bullish on Chevron, with a “strong buy” consensus from 21 analysts. Fifteen are shouting "strong buy," two are nodding towards a "moderate buy," and four are saying "hold." With a mean target price of $180.67, there's a potential upside of 13.7% from the current price.

The Bottom Line on Buffett's Dividend Aristocrat Picks

Wrapping things up, it's clear that Coca-Cola and Chevron are two of Warren Buffett's standout choices, shining bright with their steady dividends and solid financials. Coca-Cola keeps the cash flowing much like its ever-popular beverages, while Chevron powers through with a strong stance in the energy world. With KO the No. 4 holding in Berkshire's portfolio and CVX holding steady at No. 5, investors looking to borrow a page from Buffett's timeless investment wisdom might want to consider these two top-rated Dividend Aristocrats for their resilient business models and reliable passive income.

On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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