Warren Buffett Owns These 2 Ultra-High-Yield Dividend Stocks. Here’s Why They’re Great Picks for Income Investors Right Now.
Warren Buffett, the legendary investor, is known for favoring dividend stocks in his Berkshire Hathaway portfolio. Although he typically doesn’t invest in stocks with extremely high dividend yields, there are two ultra-high-yield dividend stocks that stand out in his “secret” portfolio.
To qualify as ultra-high yield, a dividend yield should be four times higher than that of the SPDR S&P 500 ETF Trust, which currently stands at 1.34%. This means that the threshold for ultra-high yield is 5.36%.
One of Buffett’s holdings, General Reinsurance, owns New England Asset Management (NEAM), which manages its own investment portfolio. NEAM’s portfolio includes two ultra-high-yield dividend stocks: Ares Capital and Verizon Communications. Ares Capital is the largest publicly traded business development company, while Verizon is a leader in telecommunications services.
Both Ares Capital and Verizon are great picks for income investors due to their high dividend yields. Ares Capital’s forward dividend yield is over 8.9%, while Verizon’s is over 6.4%. Both companies also have strong track records of dividend payouts, with Ares having 15 years of steady-to-growing dividends and Verizon increasing its dividend payout for 17 consecutive years.
Despite the risks associated with Ares facing borrower defaults and Verizon facing intense competition in the telecom market, both companies are in solid positions to continue paying and growing their dividends.
Ares Capital and Verizon also have attractive valuations compared to their respective sectors. Ares’ forward price-to-earnings ratio is below 9.2, while Verizon’s shares trade at a little over 9 times forward earnings.
In conclusion, Ares Capital and Verizon are solid picks for income investors looking for high dividend yields. While no stock is perfect and there are risks involved, both companies have strong underlying businesses that support their dividend payouts.