Want to know which stocks Warren Buffett owns? First, look at Berkshire Hathaway‘s 13-F filings to the U.S. Securities and Exchange Commission (SEC). However, those filings won’t reveal all of Buffett’s stocks.
Many investors don’t realize that there’s another group of stocks Buffett owns in addition to the stocks listed in Berkshire’s 13-F documents. New England Asset Management (NEAM) is an investment firm that’s a wholly owned subsidiary of Berkshire Hathaway. Its 13-F filings provide another basket of stocks that Buffett owns.
As is the case with Berkshire’s portfolio, many of the stocks owned by NEAM pay dividends. Here are three juicy dividend stocks in Buffett’s “secret portfolio” to buy in February.
1. Ares Capital
Buffett doesn’t own many ultra-high-yield dividend stocks. However, Ares Capital (NASDAQ: ARCC) definitely qualifies with its dividend yield of nearly 10%. Ares isn’t in Berkshire’s portfolio, but NEAM owns 225,900 shares.
How can Ares Capital pay such a juicy yield? It’s a business development company (BDC). Like real estate investment trusts (REITs), BDCs must return at least 90% of taxable income to shareholders in the form of dividends. As the largest publicly traded BDC, Ares Capital has had plenty of income to return with more than 13 years of stable or increasing dividends.
Ares Capital fills a need by providing loans to midsize companies at which big banks often turn up their noses. The BDC’s portfolio is much more diversified than its peers’. This lower risk profile has helped Ares Capital outperform its rivals. Ares has also generated total returns that are roughly 80% higher than the S&P 500 since its initial public offering in 2004.
Higher interest rates boost Ares Capital’s profits. However, the company has also performed well during periods of low interest rates. CEO Kipp DeVeer stated in October 2022 that Ares Capital should be able to generate enough earnings to keep paying its dividend at current levels “under a variety of interest rate and economic scenarios for the foreseeable future.” That’s the kind of optimism that income investors like to hear.
Buffett has become a big fan of the oil and gas industry over the last couple of years. Berkshire’s portfolio doesn’t include any midstream energy companies, but NEAM’s does. The investment firm owns a tiny position in midstream leader Enbridge (NYSE: ENB).
Enbridge operates more than 76,500 miles of natural gas pipelines and 17,800 miles of liquids pipelines, plus export and storage facilities. It has also moved into renewable energy with 23 wind farms, 17 solar energy facilities, as well as hydroelectric, hydrogen, and geothermal facilities.
The company has increased its dividend for 28 consecutive years. Its dividend yield currently stands at 6.4%.
Could oil price fluctuations hurt Enbridge? Not really. The company’s business is immune to oil price volatility. Enbridge has highly predictable cash flow thanks to its contracts with customers.
Buffett owned shares of AbbVie (NYSE: ABBV) in Berkshire’s portfolio not too long ago. He subsequently exited his positions in AbbVie and several other big pharma stocks. However, the legendary investor nonetheless still has a stake in AbbVie through NEAM.
AbbVie ranks among the best dividend stocks in either of Buffett’s portfolios. The company is a Dividend King with 51 consecutive years of dividend increases. Its dividend yield currently tops 4%.
Some investors might be leery of buying AbbVie stock right now. The company’s top-selling drug, Humira, faces steep sales erosion due to biosimilar competition in the U.S. AbbVie’s revenue and profits will no doubt fall significantly in 2023.
However, these expectations are already largely baked into AbbVie’s share price. The company has a strong lineup of products that should enable it to return to growth after this year with solid growth prospects over the long term. Most importantly for income investors, AbbVie’s dividends should continue to flow and grow.
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Keith Speights has positions in AbbVie and Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and Enbridge. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool has a disclosure policy.