The Real Reason Warren Buffett Is ‘All-In’ on Dividend Stocks

The amount was jaw-dropping.Warren Buffett

Global companies paid a record $1.37 trillion in dividends in 2018, according to data gathered by Janus Henderson Investors. Global companies paid 9.6% more dividends in 2018 compared with dividends paid in 2017.

A record amount was paid in “Liberty Checks” in 2018. Another record amount will be paid in 2019.

Global dividend payments have doubled over the past 10 years.

Dividend growth will be less ostentatious in 2019, but it will still be observed. Janus Henderson expects global companies to pay at least $1.4 trillion in dividends this year.

Is it a coincidence that stock prices have also doubled (and then some) over the past 10 years?

I think not. The anecdotal evidence points to a relationship more causative than correlative. As the dividend goes, so goes the share price.

Consider the SPDR S&P 500 ETF (NYSE: SPY), an S&P 500 Index proxy. The S&P 500 Index is larded with the world’s largest dividend-growth stocks, and so is the SPDR ETF.

The SPDR ETF’s quarterly dividend has increased 156% over the past 10 years. The SPDR ETF is up 182% over the same period.

Receive “Liberty Checks” that yield up to 20X the dividend yield of the S&P 500. 

The hard data also confirm a causative relationship between dividends and share price.

Ned Davis Research data show that dividend-growth stocks offer the highest returns with the lowest volatility. Dividend-growth stocks beat not only other dividend stocks, they beat all stocks.

Dividend-growth stocks produced a 10.1% average annual return from 1972 through 2018. The return was higher than with all dividend payers (9.3%), dividend payers with no change (7.5%), non-dividend payers (2.8%), and dividend cutters (-0.3%).

What’s more, Ned Davis’ data go on to show dividend growers produced the highest returns with the least volatility.

Now, to our man Warren Buffett.

Most investors know that Warren Buffett is board chair and CEO of Berkshire Hathaway (NYSE: BRK.b), Buffett’s primary investment vehicle. Berkshire Hathaway owns a huge stock portfolio that’s heavily concentrated toward the top. The top 10 holdings account for 80% of the portfolio value.

All 10 stocks that Berkshire Hathaway owns pay a dividend. What’s more, nine of the 10 pay a growing dividend. They are dividend-growth stocks.

The stream of dividends they pay to Berkshire Hathaway rises each year.

Berkshire Hathaway received $1.44 billion in dividends in 2011. It received $3.8 billion in 2018. The dividend stream has increased 164% since 2011.

As for Berkshire Hathaway’s share price, it’s up 151% over the same period.

I’ll concede that the relation between the dividends Berkshire Hathaway receives and its share price is less causative than the relationship between SPDR ETF and the dividends it pays. Berkshire Hathaway is more than an investment vehicle, it’s also an operating company. I’ll also concede that the composition of Berkshire Hathaway’s investment portfolio will change.

Nevertheless, the rising stream of annual income – from $1.44 billion to $3.8 billion – can influence firm value only favorably. Dividends received might not be the leading variable in Berkshire Hathaway’s share-price ascension, but they are a positive contributing variable.

What applies to an ETF and a conglomerate based in Omaha, Neb. applies to individual stocks.

Consider Microsoft (NASDAQ: MSFT), a blue-chip stock that flies under no one’s radar.

Microsoft’s quarterly dividend is increased annually. It has increased 300% since 2011. Microsoft’s share price has also increased 300%.

The global dividend stream continues to rise to record levels. I continue to recommend investors buy the stocks that contribute to the rising stream.

Published by Wyatt Investment Research at