3 Top Dividend Stocks in Warren Buffett's Secret Portfolio — and How Much Income You Could Make From Them

Warren Buffett has a secret. He owns more stocks than many people realize.






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3 Top Dividend Stocks in Warren Buffett’s Secret Portfolio — and How Much Income You Could Make From Them

You might think that all of Buffett’s stocks are included in Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRK.B) 13F filings to the U.S. Securities and Exchange Commission (SEC). However, that list isn’t exhaustive. The reason is that a Berkshire subsidiary, New England Asset Management (NEAM), owns quite a few stocks that aren’t included in Berkshire’s SEC submissions. In a sense, Buffett has a “secret portfolio.”

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That portfolio features plenty of dividend stocks, some of which offer especially juicy yields. Here are the three top dividend stocks in Buffett’s secret portfolio — and how much income you could make from them.

1. Ares Capital

Ares Capital (NASDAQ: ARCC) provides investors with a dividend yield of 9.7%. That’s by far the highest yield of any stock owned by NEAM or owned directly by Berkshire Hathaway. For each $10,000 invested, you could earn roughly $970 in annual income.

How can Ares Capital pay such a big dividend? For one thing, it’s a business development company (BDC). Like real estate investment trusts (REITs), BDCs must return at least 90% of their taxable income to shareholders as dividends.

Ares continues to generate plenty of profits to hand over to its shareholders. And it’s able to do so for a couple of key reasons. First, the company manages risk very effectively. Ares’ portfolio is much more diversified than most other BDCs, with less exposure to highly volatile segments. Second, the company benefits from banks pulling away from middle-market lending. This trend has created demand for BDCs — especially well-respected leaders like Ares.

Could defaults increase significantly enough to hurt Ares Capital this year? The company doesn’t think so. CEO Kipp DeVeer said in the latest quarterly update that Ares expects a cycle where defaults could rise but not exceed historic averages.

2. Enbridge

Buffett has loaded up Berkshire’s portfolio on some oil stocks, but there aren’t any midstream energy companies in the mix. His secret portfolio, though, is a different story. NEAM owns a tiny stake in midstream leader Enbridge (NYSE: ENB).

That small position won’t move the needle much at all for NEAM and certainly not for Berkshire. However, buying shares of Enbridge could potentially pay off for income investors. With a dividend yield of 6.73%, every $10,000 invested in the stock would make $673 in annual income.

Enbridge’s dividend is arguably one of the safest in the energy sector. The company has increased its dividend for 28 consecutive years. Its cash flow also doesn’t hinge on volatile oil prices. Nearly all (98%) of Enbridge’s cash flow is either based on a cost-of-service model or contracted.

The stock could be ready for a big upswing this year. Enbridge is rapidly expanding into renewable energy, with several new projects in progress.

3. Verizon Communications

Berkshire directly owned shares of Verizon Communications (NYSE: VZ) in the past. Even though the conglomerate eventually exited the position, it still owns a stake in the telecom giant via NEAM. 

Verizon remains a favorite for income investors for a good reason. Its dividend yield stands at nearly 6.6%. For every $10,000 invested in the stock, your annual income would total close to $660.

The bad news is that over the past couple of years, Verizon’s overall stock performance would have wiped out any income you might have made. However, 2023 is looking somewhat better, at least so far.

Still, Verizon’s business isn’t nearly as strong as many investors would prefer. The company’s outlook for this year isn’t great. On a positive note, however, Verizon’s high dividend yield appears to be on solid ground.

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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and Enbridge. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

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