How Warren Buffett Gets a 62% Dividend Yield

Income is everything when investing. If you’re not investing for income, you’re speculating.
I have no bias against speculating. I will speculate when I buy a stock or other asset with a price goal as the sole objective.
That said, most of my time (and money) is dedicated to investing. I’m constantly searching for and analyzing income investments. Dividend-paying stocks are the frequent target.
One segment of the dividend-paying market stands above the rest. It’s the dividend-growth segment. I’ve labeled the segment the “Ninth Wonder” of investing.
You’re likely familiar with the Seven Wonders of the World — the Great Wall of China, the Taj Mahal, the Great Pyramid of Giza, etc.
You may be familiar with the “Eighth Wonder” – Einstein’s observation of compound interest. As Einstein putatively said, “Compound interest is the eighth wonder of the world. He who understands it earns it . . . he who doesn’t . . . pays it.”
My “Ninth Wonder” refers to the ability to grow wealth and income over time through dividend stock investing. I refer specifically to dividend-growth-stock investing.
No investor has exploited my “Ninth Wonder” as well as the big guy in Omaha – Warren Buffett, chairman and CEO of Berkshire Hathaway (NYSE: BRK.b).
The top 10 holdings in Berkshire’s stock portfolio account for 80% of portfolio value. All are dividend-growth stocks.
The top three holdings – Apple (NASDAQ: AAPL), Wells Fargo (NYSE: WFC), and Kraft Heinz (NASDAQ: KHC) – account for 43% of the portfolio value. These three stocks alone generate $2 billion of dividends annually for Berkshire. The amount will grow annually.
The market value of Berkshire’s stock portfolio will grow, as well. As day follows night, share-price appreciation follows dividend growth.
One Berkshire stock is particularly enlightening on the power of dividend-growth investing to generate wealth and high-yield income.
Coca-Cola (NYSE: KO) is Berkshire’s fifth-largest stock holding. Buffett began accumulating Coca-Cola shares for Berkshire in 1987. He bought $1 billion worth of Coca-Cola stock in 1988.
I’ll assume Buffett paid an average of $2.50 per share (split-adjusted) for his Coca-Cola shares. This is reasonable given the trading range in late 1987 and 1988.
Coca-Cola pays $1.56 per share in annual dividends today. The dividend generates a 62% yield on Berkshire’s cost basis. Coca-Cola increases its dividend roughly 6% annually. The annual increases are pedestrian but powerful.
If Coca-Cola continues to increase its dividend 6% annually, Berkshire will receive $2.50 in annual per-share dividends by 2026. Berkshire will own an investment, Coca-Cola, that generates a 100% annual return (that will grow thereafter) in dividends alone in the next eight years.
And let’s not forget the actual shares. As the dividend goes, so goes the share price.
Coca-Cola’s dividend has been increased over the years to generate a 62% annual yield on Berkshire’s cost basis. Coca-Cola’s market value has increased to be worth 17.5 times Berkshire’s cost-basis price.
So, consider following Buffett’s lead on the “Ninth Wonder,” dividend stock investing. The good news is that you need not be octogenarian genius (Buffett). My “Ninth Wonder” strategy is remarkably simple. Dividend stock investing requires no unique insight, exceptional skill or superior acumen.
All it requires is a solid dividend growth stock and time. That’s it.
Before you know it, you’ll be generating 62% annual returns in dividends alone on your stock investments.