40.5% of Warren Buffett’s $312 billion Berkshire Hathaway portfolio is in these two dividend stocks

Under the leadership of CEO Warren Buffett, Berkshire Hathaway has paid a dividend to its investors only once (a $0.10 per share payment since 1967). Instead, the company chooses to use its capital to invest in its wholly owned businesses and other companies, make new acquisitions, buy treasury bonds and buy back its own stock.

Given that Berkshire’s stock is up more than 3,976,400% since Buffett acquired a controlling stake in the company in 1965, it’s hard to argue with the Oracle of Omaha’s capital allocation strategy. The stock’s gains over the period would have turned a $1,000 investment into more than $42.5 million today.

Even though Berkshire doesn’t pay a dividend itself, Buffett is a big fan of companies that return cash to shareholders through direct payments. In fact, each of the company’s 10 largest stocks pays a dividend — and its portfolio is heavily weighted to only a handful of dividend-paying stocks. Read on to see the two dividend stocks that make up 40.5% of Berkshire Hathaway’s $312 billion stock portfolio.

Much more than the dividend

Jennifer Saibil: Apple (AAPL -0.70%) he was recently inducted into Buffett’s hallowed trio of stocks he said he would never sell. As it turns out, he meant he would never sell full position because he sold some Apple stock right after he said it.

But that doesn’t mean it fell out of favor with Buffett. It still represents about 28.3% of Berkshire Hathaway’s entire portfolio.

Like the other Buffett forever holdings, Apple is a dividend stock. It doesn’t have a high yield — just 0.45% at the current price or well below S&P 500 average of 1.3%. That’s close to its lowest return ever, which is partly because Apple shares have been outstanding this year, gaining nearly 15% year to date.

Dividends demonstrate several things that are important to Buffett, regardless of yield. It’s a tangible sign of Apple’s commitment to creating shareholder value and means management is prioritizing its cash position, which is critical to operating a viable and growing business. Apple has a low payout ratio of just 14.9% because it’s still in robust growth mode and uses most of its earnings for innovation and operations.

Apple has the global brand name and moat that Buffett loves, and being able to sustain that is a key element in maintaining its lead and advantage. Apple fans have been known to stick with the company’s platform, swapping for new models when they’re released. They are loyal to the Apple ecosystem, which differentiates itself through innovation, operating system, ease of use and overall excellence. Buffett has said that Apple is an even better business than his other stocks forever, Coca cola and American Express (AXP -3.09%).

It’s no surprise that Apple is beating the market this year or returning to the top spot as the most valuable company on the stock market. It is exciting investors with its progress in artificial intelligence, and the newest iteration of the iPhone is expected to be released this month. Even though it has already made a lot of millionaires, there is a lot to expect from Apple stock.

American Express is now Buffett’s second-biggest bet

Keith Noonan: Following significant portfolio reshuffles in the second quarter, American Express outperformed Bank of America to become Berkshire’s second largest total holding of stocks. The Oracle of Omaha Company owns more than 151.6 million shares of AmEx, and the position represents 12.2% of its total shares.

The credit card-focused banking company has delivered strong financial results, and its stock price is up about 58% over the past year. Those high earnings also pushed down the company’s dividend yield. That’s not a problem for Berkshire because the company acquired most of its AmEx shares at much lower prices, but is the stock still worth it to other income-seeking investors at current prices?

While the company’s current yield of around 1% may not look like much, there’s a good chance that shares bought today will yield much higher going forward. American Express has increased its dividend payout by about 63% over the past three years, and it hasn’t let up on the accelerator when it comes to growing payouts.

Along with the payout increase announced in March, American Express increased its dividend by 17%. Strong financial performance has paved the way for strong payout growth, and there’s good reason to expect that earnings expansion will continue to facilitate rapid dividend growth.

American Express’s revenue rose 8% year-over-year in the second quarter, and non-GAAP (adjusted) earnings per share rose 21% year-over-year. The company added 3.3 million new card accounts in the quarter and posted its 24th consecutive quarter of double-digit annual growth in card fees. For the full year, the company expects sales to rise between 9% and 11%, and its midpoint guidance calls for earnings growth of around 21%.

The American Express brand and its financial products continued to gain favor. And due to its focus on attracting a customer base of high credit quality, the company also has the benefit of best-in-class default rates. Although the stock returns below the S&P 500 average, it still looks like a worthwhile investment.