Warren Buffett loves dividends
As you go about your financial life, it's smart to learn from those who are great at managing money. It's hard to top Warren Buffett for that, as shares of his company, Berkshire Hathaway, have risen in value by 2,744,062% between 1964 and 2019. That's an average annual growth rate of over 20.4%!
One of Buffett's wealthbuilding strategies is available to all of us: investing in healthy and growing dividend-paying stocks. Over decades, Buffett has bought many companies outright — such as Dairy
Queen and the entire BNSF railroad network — and he's bought portions of many other companies via shares of their stock. In Berkshire Hathaway's 2019 annual report, Buffett listed the total dividends received just from Berkshire's 10 largest stock holdings, which include American Express, Apple and Bank of America, and they amounted to nearly $3.8 billion. That's cash arriving year in and year out, which Buffett can reinvest in more companies or stock, building Berkshire's wealth further.
Consider just one of those stocks: Coca-Cola. Berkshire Hathaway owned 400 million shares — 9.3% of the whole company — as of the end of 2019, a stake worth $22.1 billion at that time. Buffett noted that the cost to acquire those shares over time was $1.3 billion. That alone reflects a great gain, but remember the dividends: Berkshire's shares of CocaCola entitled it to about $640 million in dividends in 2019 alone (up from $624 million in 2018). And the company has owned shares in Coca-Cola for many years, collecting dividends all along. Just a few recent years' worth of dividends earned back the entire price paid for the shares.
You may enjoy similar results, on a smaller scale, if you park money in some great dividend-paying stocks. Favor companies that are increasing their payouts briskly, and those generating plenty of cash for dividend payments. Check out our “Total Income” service at Fool.com/services to see some stocks we recommend. Or just opt for a dividend-focused fund or two, such as the Schwab U.S. Dividend Equity ETF (SCHD) or the Vanguard High Dividend Yield ETF (VYM).