Greg Abel-Led Berkshire Hathaway Owns 26 Dividend Stocks. Here's the One I'd Buy First.

In his first letter to shareholders as the CEO of Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB), Greg Abel made his position clear on whether Berkshire Hathaway would offer a dividend any time soon. His position was no different than his predecessor, Warren Buffett.

"Our approach to cash dividends continues to be that Berkshire will not pay dividends so long as more than one dollar of market value for shareholders is reasonably likely to be created by each dollar of retained earnings," Abel wrote in the shareholder letter back in late February.

While Abel and Berkshire don't pay out a dividend, they certainly like stocks that do. Of the 29 stocks currently in Berkshire Hathaway's $299 billion portfolio, 26 of them pay dividends. Of those 26 dividend stocks, here is the one I'd buy first.

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Constellation Brands

Berkshire holds some excellent dividend stocks, namely Coca-Cola, Kroger, Chevron, and American Express, but if I had to pick one, it would be Constellation Brands (NASDAQ: STX). It is one of the largest beer importers and marketers in the U.S. and it sells two of the most popular brands, Corona and Modelo. It also sells wine and spirits, but beer makes up more than 90% of its revenue.

It has faced declining revenue in recent years due to demographic shifts with younger generations consuming less alcohol, tariffs raising packaging prices, inflation, and a pullback among Hispanics, who account for about 50% of beer sales. Last year on an earnings call with analysts, CEO Bill Newlands said that the Trump Administration's hardline immigration policies were causing less consumption among Hispanics due to various factors, including a drop in social gatherings. This has led to a slowdown in revenue and has challenged earnings.

But while revenue was down 3% in the most recent quarter, adjusted earnings were up about 7% year-over-year to $3.43 per share. Constellation has been able to boost its profitability by divesting some of its lower margin, lower selling wine and spirits businesses and reinvesting in its higher margin beer business. That has improved the bottom line and increased its cash position.

High-yield dividend

In the most recent quarter, Constellation reported an operating cash flow increase of 4% year-over-year to $662 million while free cash flow jumped 9% to $485 million. That should help it remain committed to its dividend, which it has increased for 10 straight years.

It currently pays out a quarterly dividend of $1.03 per share at a high yield of 3.64%. Further, it has a low payout ratio of 34%, so it should be able to easily sustain its dividend.

In addition to its strong dividend, the stock is pretty cheap, trading at just 11 times earnings. It is currently down 19% year to date and is trading at a 52-week low of $113 per share. But Wall Street is bullish on this beaten down stock as 62% of analysts rate it as a buy with a median price target of $173.50 per share. That would suggest a 12-month return of 54%.

So, in addition to the safe and sustainable dividend, there could be some significant upside for the share price, considering its cheap valuation.

American Express is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Express, Berkshire Hathaway, and Chevron. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.