Revealed: How Warren Buffett Beat the Market for 60 Years

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It’s that time of the year: It’s time for Warren Buffett’s annual letter to Berkshire Hathaway (NYSE: BRK.b) shareholders.
The letter is a public document, so it’s open to all. Because the letter is open to all, this is also the time of the year we get hit with a blizzard of Warren Buffett “list” articles: “Warren Buffett’s Top 10….”, “Top 7 Takeaways from Buffett’s Annual Letter…”, “Top 5 Lessons Warren Buffett Tells….”
You get the idea, because it’s the same idea (or ideas) presented the year before and the year before that: Warren Buffett buys good companies at good prices, reveres the no-interest financing offered by insurance float, advises investors to avoid margin debt, measures holding periods in years.
Anyone over age 40 is familiar with the refrain.
It’s mostly preaching to the choir stuff, of course. But unlike the fidgety 10-year-old forced to partake in the Sunday morning service, the congregants revel in Buffett’s preaching.

Secret to Berkshire Stock Holdings

But there really is no “top 7,” “top 10,” or top whatever the reaching writer attempts to aggregate from Buffett’s preaching. Everything really distills to a “top 1” — and that’s dividends.
Buffett has been an unabashed buyer of dividend-paying stocks since day one. Dividend-paying stocks dominate Berkshire Hathaway’s investment portfolio to this day.
The top ten Berkshire stock holdings all pay dividends. The top ten Berkshire stock holdings account for 80% of the market value of Berkshire’s domestic stock investments.

Shares Owned
Annual Dividend Per Share Annual Dividends Received
Apple (NASDAQ: AAPL) 165.3 Million $2.52 $416.6 Million
Wells Fargo (NYSE: WFC) 458.2 Million $1.56 $714.8 Million
Kraft Heinz (NASDAQ: KHC) 325.6 Million $2.50 $814.0 Million
Bank of America (NYSE: BAC) 679.0 Million $0.48 $325.9 Million
Coca-Cola (NYSE: KO) 400.0 Million $1.56 $624.0 Million
American Express (NYSE: AXP) 151.6 Million $1.40 $212.2 Million
Phillips 66 (NYSE: PSX) 80.7 Million $2.80 $225.9 Million
U.S. Bank (NYSE: USB) 87.1 Million $1.20 $104.5 Million
Moody’s Corp. (NYSE: MCO) 24.7 Million $1.76  $43.5 Million
Bank of New York Mellon (NYSE: BK) 60.8 Million $0.96  $58.4 Million

I’ll tally the annual amounts for you. Berkshire receives $3.5 billion a year in annual dividends from its top 10 holdings.
There’s more to the story, though, than billion-dollar annual income.
Most of the stocks in the Berkshire stock holdings pay dividends that yield in the 1.5%-to-2.5% range on the market price. Coca-Cola’s dividend generates the highest yield at 3.6%. But they all grow their dividends. Berkshire’s cost-basis yield far exceeds the market yield for most of its investments.

Coca-Cola’s in Buffett’s Wealth-Building

Coca-Cola, one of Berkshire’s oldest holdings, demonstrates the wealth-building power of investing in dividend-growth stocks.
Buffett began accumulating Coca-Cola shares for Berkshire in 1987. He bought $1 billion worth of Coca-Cola stock in 1988.
I’ll assume Buffet 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 the pedestrian can be 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.
By all means, heed Buffett’s words, but you’ll do better by copying his strategy.
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