Warren Buffett’s 2 Dividend Stocks to Buy in September

Warren Buffett has built a reputation as one of the greatest investors in history over the past few decades. Since taking office Berkshire Hathaway in 1965, his capital allocation skills helped increase the company’s share price by 4,384,748% (as of the end of 2023).

Buffett has built a reputation for pursuing a long-term investing style. He invests in companies that have enduring competitive advantages and attractive return prospects because, in part, they trade at reasonable valuations. These are also the traits you should look for when investing in stocks for passive income.

Here are two exceptional companies in Berkshire Hathaway’s $284 billion stock portfolio that should be able to grow their dividends for years to come.

1.Coca-Cola

Coca-Cola (KO 1.00%) is a resilient brand that has been paying rising dividends for more than half a century. It sees further opportunities to squeeze more revenue growth from developed markets, which points to further dividend increases.

Coca-Cola generates solid adjusted revenue growth despite weak volumes in North America. While unit volume in North America declined 1% year-over-year in Q2, volumes rose solidly in the Latin America and Asia Pacific regions, underscoring the beverage company’s ability to gain share in international markets.

The brand has been resilient in an inflationary environment. The majority of the company’s adjusted revenue growth of 15% year-over-year in the latest quarter was driven by price increases, suggesting healthy demand for its brands.

Of course, all of this helps fuel the company’s earnings growth and dividend growth. Coca-Cola’s adjusted earnings rose 17% year over year in the latest quarter, and the company paid out 58% of those earnings—$0.485 per share—in dividends. The company has increased its dividends every year for 62 consecutive years, and it’s well-positioned to keep that streak going.

Overall, management characterizes the beverage industry as attractive and growing, and Coca-Cola has the brand strength to outpace the industry over time through market share gains. That’s why Buffett has held the stock in Berkshire’s portfolio for more than 30 years without selling a single share.

Taking into account the current payout, the stock’s future dividend yield is 2.7% – well above S&P500The average return is 1.3%. Given the company’s healthy sales and earnings growth, this high return suggests that Coca-Cola’s stock is likely undervalued and could continue to rise to new highs over the next year.

2. Visa

Buffett loves investing in companies that dominate their markets and offer essential services that can’t be replaced. That helps explain why Berkshire Hathaway owns stock Visa (IN 2.23%) and two other credit card companies.

The credit card market is dominated by several brands, including Visa, American Express, MasterCardAND Discoverbut Visa is a relatively safe credit card because, unlike American Express and Discover, it doesn’t issue cards that bear its name, so it doesn’t take on any credit risk. It focuses on the much more profitable business of managing a payment processing network.

Visa has paid out 21% of its earnings over the past year. The current quarterly payout is $0.52 per share, giving it a yield of about 0.7%. That’s a relatively low yield (partly because the stock has performed well), but investors are also getting above-average dividend growth.

Visa raised its dividend by 15% last year, and investors should expect the company’s earnings to continue to grow at double-digit rates to fund the next increase. Visa has a huge opportunity to capture an even larger share of the $20 trillion in consumer payments that occur each year in cash, checks, and various forms of electronic payments.

Analysts expect the company’s earnings to grow by 12% year over year over the next few years. Visa’s share price should continue to follow this growth and deliver satisfactory returns to shareholders.

American Express is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. John Ballard has no holdings in any of the stocks mentioned. The Motley Fool owns shares in and recommends Berkshire Hathaway, Mastercard, and Visa. The Motley Fool recommends Discover Financial Services and recommends the following options: long January 2025 $370 call options on Mastercard and short January 2025 $380 call options on Mastercard. The Motley Fool has a disclosure policy.