All it takes is $1,000 invested in Coca-Cola and each of these 3 Warren Buffett dividend stocks to generate over $100 in passive income per year

of Warren Buffett Berkshire Hathaway has attracted attention in recent weeks after reporting a substantial reduction in its largest public holding, Apple. The move followed a 12.9% reduction in Berkshire’s stake in Apple earlier this year.

By selling a large chunk of Apple stock and not tracking the growth stock, Berkshire Hathaway is sending a warning to investors that Buffett believes many stocks are overvalued. People who feel the same way might want to consider some of the reasonably priced dividend payers in Berkshire’s portfolio, such as Coca cola (K.O 0.27%), Bank of America (BAC 0.15%), Chevron (CVX 0.43%)and Occidental Petroleum (OXY -0.27%) — that allow them to participate in the exchange without paying for other high-flying alternatives.

Investing $1,000 in each stock should generate at least $100 in passive income per year. Here’s why all four dividend stocks are worth buying now.

Image source: Getty Images.

Coca-Cola kicks into a new gear

Coca-Cola is having a great year, with the stock hovering around an all-time high and up 17% year-to-date at recent prices, which is better than S&P 500 or Nasdaq Composite. Even with the big gain, the stock has still underperformed both benchmarks by a wide margin over the past five years. But there’s reason to believe the company is turning things around.

Coca-Cola has made some notable acquisitions in recent years, not all of which have been resounding successes (I’m looking at you, Bodyarmor). If a beverage line is not well received, it can lead to inflated costs and lower margins. But when Coca-Cola is at its best, it can take a brand to the next level with its global supply chain and distribution network. Topo Chico is an excellent example of the effectiveness of this model.

KO Revenue (TTM) data by YCharts

If you look at a 20-year graph of Coca-Cola’s sales and operating margin, you’ll see record revenues in the early 2010s associated with low margins, followed by high margins but lower sales in later years. The company is finally returning to sales growth and maintaining high margins, which is especially impressive given that consumers have pulled back on discretionary spending.

With a dividend yield of 2.8% and a bright future, Coca-Cola is a safe dividend stock to buy now.

A balanced bank stock

Higher interest rates can be a boon for banks because they make lending more profitable and can increase interest income. But they can also slow economic growth, affecting other business units for diversified banks such as Bank of America.

As with Apple, Berkshire has reduced its Bank of America position, but it remains one of its largest holdings.

while JPMorgan Chase is arguably a better-run bank than Bank of America, it has become an expensive stock compared to its peers. At recent prices, Bank of America has a lower price-to-earnings ratio of 1.15, which is slightly lower. Wells Fargoit is 1.20 and significantly below 1.94 for JPMorgan. At 2.6%, it also has a higher yield than JPMorgan’s 2.1%.

Since cutting its quarterly dividend to just $0.01 after the financial crisis, Bank of America has worked hard to restore trust in payouts, making some sizable increases in recent years.

All in all, Bank of America is a solid choice for passive income investors looking for reliable banking stocks at a fair price.

A diversified oil major

Berkshire first began building a stake in Chevron in late 2020 and then increased its position significantly in 2022, with its share count peaking in the third quarter of 2022. Berkshire bought more Chevron shares in late last year. As of the most recent record, it is the fifth largest holding behind Coca-Cola.

Despite fairly stable and strong oil prices, Chevron is hovering around a 52-week low. Part of the concern is the status of its $53 billion deal to acquire Hesswhich faces some challenges.

But unlike some acquisitions that can make or break an investment thesis, Chevron can do very well even if the Hess deal falls through.

Despite the volatility of oil and gas prices, the company has been a remarkably reliable dividend stock with 37 consecutive years of gains. Chevron has a solid balance sheet and a yield of 4.4%, making it an excellent choice for growing passive income.

An oil company that takes risks

Unlike Chevron, which is an integrated oil company operating in various parts of the oil and gas value chain, Occidental Petroleum (commonly known as Oxy) is a pure exploration and production (E&P) company.

E&P can be particularly sensitive to oil prices. And Oxy compounds this inherent risk by growing its balance sheet when it wants an attractive acquisition. It did so when it outbid Chevron to buy Anadarko Petroleum in 2019 (which strained its balance sheet badly during the pandemic). And it’s doing so again with its agreement to buy CrownRock for $12 billion.

Despite its risk-tolerant approach, Oxy stands out as a buy for investors who are confident that oil and gas prices can remain at decent levels. It delivers excellent results and invests in long-term growth opportunities.

Oxy has a dividend yield of just 1.5%, but it’s near a 52-week low and looks too cheap given its earnings growth. Chevron is undoubtedly the best buy, especially if you prefer a diversified oil and gas stock. But investors are getting a great opportunity to pick up shares of Berkshire’s sixth-largest public holding.

Four options to consider now

Berkshire Hathaway prefers to buy back its own stock rather than pay a dividend, believing it to be a better use of capital. But there’s a reason why Buffett and his team have owned reliable dividend-paying companies like Coca-Cola and American Express for over 30 years.

Top dividend stocks provide income without having to sell shares, which can be especially important when the market sells off. The best dividend-paying companies use their payout as just one aspect of the investment thesis by growing the underlying business through higher earnings — which in turn can lead to higher market capitalization and capital gains.

Coca-Cola, Bank of America, Chevron, and Occidental Petroleum are four companies that fit this type of “top dividend stock” — making them excellent choices to consider now.