2 Warren Buffett Dividend Stocks to Buy in September

Warren Buffett has developed a reputation over the past few decades for being one of the greatest investors ever. Since he took over Berkshire Hathaway in 1965, his capital allocation skills helped increase the company’s stock prices by 4,384,748% (as of the end of 2023).

Buffett made his reputation by executing a long-term investing style. He invests in companies that have sustainable competitive advantages and attractive profitability prospects because they, in part, trade at reasonable valuations. These qualities are also what you should look for when investing in stocks for passive income.

Here are two standout companies in Berkshire Hathaway’s $284 billion stock portfolio that should be able to keep growing their dividends for many years to come.

1. Coca-Cola

Coca cola (K.O 1.00%) is a resilient brand that has paid increasing dividends for more than half a century. He sees more opportunities to extract more earnings growth from developed markets, which points to more dividend hikes.

Coca-Cola manages to generate solid adjusted revenue growth despite weak sales volumes in North America. While unit case volume in North America fell 1% year-over-year in Q2, volumes grew solidly in the Latin America and Asia Pacific regions, showing opportunities for the beverage company to gain share in international markets.

The brand has been resilient in the inflationary context. Most of the company’s 15% adjusted revenue growth from last year was attributed to higher prices, suggesting healthy demand for its brands.

Of course, all this contributes to the growth of the company’s earnings and the growth of dividends. Coca-Cola’s adjusted earnings rose 17 percent from a year ago last quarter, and it paid out 58 percent of those earnings — $0.485 per share — in dividends. The company has increased its dividend annually for 62 consecutive years and is well positioned to continue that streak.

Overall, management characterizes the beverage industry as attractive and expanding, and Coca-Cola has the brand power to grow faster than the industry over time through market share gains. This is why Buffett kept the stock in the Berkshire portfolio for more than 30 years without selling a single share.

Based on its current payout, the stock’s forward dividend yield is 2.7% — well above that S&P 500its average yield of 1.3%. With the company’s sales and earnings growing at healthy rates, that high yield suggests Coca-Cola stock is likely undervalued and could continue to climb to new highs in the year ahead.

2. Visa

Buffett likes to invest in businesses that dominate their markets and provide essential services that would be impossible to replace. This helps explain why Berkshire Hathaway owns stocks Visa (V 2.23%) and two other credit card companies.

The credit card market is dominated by a few brands, including Visa, American Express, MasterCardand Discoverbut Visa is a relatively safe credit card stock because, unlike American Express and Discover, it doesn’t issue cards that include its name, so it poses no credit risk. It focuses on the much more profitable network management business that processes payments.

Visa paid out 21% of its earnings over the past year. The current quarterly payout is $0.52 per share, which brings its forward yield to about 0.7%. That’s a relatively low yield (in part because the stock is performing well), but investors are also getting above-average dividend growth.

Visa raised its dividend by 15% last year, and investors should expect the company’s earnings to continue growing at double-digit percentage rates to fund more growth. Visa has a huge opportunity to capture even more of the $20 trillion in consumer payments that happen each year through cash, check and various forms of electronic payments.

Analysts expect the company’s earnings to grow at an annual rate of 12% over the next few years. Visa’s share price should continue to follow this growth and provide satisfactory returns to shareholders.