Warren Buffett's Portfolio Includes 8 High-Yield Dividend Stocks -- Here's My Top Pick

Key Points

• Buffett's team has aggressively added shares of this stock in recent quarters.

• The stock is likely cheaper than the P/E ratio might imply.

• 10 stocks we like better than Constellation Brands ›

Warren Buffett and his team at Berkshire Hathaway have long invested in dividend stocks. In today's market environment, the average dividend yield is 1.2%.

If one defines "high yield" as double that return or more, eight stocks in the Berkshire portfolio offer such dividend returns. However, of these, my top pick in the market's current state is the stock the company has bought aggressively lately, Constellation Brands (NYSE: STZ), and here's why.

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Berkshire's high-yield stocks

Choosing Constellation is also a question of why not the other seven high-yield dividend stocks in the Berkshire Hathaway portfolio. In most cases, it owns stocks that were once excellent buys but are now better as holds or possibly, stocks one should sell.

In recent quarters, Berkshire has trimmed holdings in Bank of America. Also, it has kept share counts the same for other stocks for years. Ally Financial and Constellation peer Diageo fit that description. Nonetheless, the best example may be Coca-Cola, as Berkshire's position size has remained unchanged since 1994.

Of the eight stocks, Kraft Heinz has the most significant yield at 5.8%. However, since Berkshire helped consolidate that company in 2015, the stock has fallen by two-thirds, and it experienced a dividend cut in 2018. Amid the unhealthy state of the packaged food industry, its problems are likely far from over.

SiriusXM is also going through some turmoil. On the surface, investors may like its 4.9% dividend yield, but struggles with subscriber growth have weighed on the stock.

Of these choices, energy giant Chevron is my second favorite. Amid the 4.4% dividend yield, Berkshire made modest additions to its position. Still, its rising stock price makes it less likely to move higher in the near term, making it more fitting for investors focused exclusively on income.

The case for Constellation Brands

Admittedly, despite the state of Berkshire's seven other high-yield dividend stocks, choosing Constellation may come as a surprise to many. Amid the rise in cannabis-infused products, Gen Z consumes less alcohol than older generations, which could bode poorly for the company's future.

Moreover, although Constellation is an alcohol stock, beer makes up the overwhelming majority of its revenue. It holds U.S. distribution rights to some of America's most popular beers like Modelo and Corona. Still, those come from Mexico, and with looming tariffs, Modelo could lose its status as the U.S.'s No. 1 beer.

Furthermore, Constellation's annual dividend is $4.08 per share, a yield of just under 2.5%. That is well below several Warren Buffett investments, including Chevron.

Still, the payout has risen every year since 2015, indicating that it can deliver returns long term. Furthermore, making Constellation the top choice means one must also argue a case for stock price appreciation on top of dividend growth.

Constellation could ultimately deliver those returns because, for all of its problems, it is a turnaround story with a visible path to success. Although the company and some of its brands face significant challenges, humans have consumed alcohol for thousands of years, and this dynamic is unlikely to change.

Moreover, consumers tend to gravitate to familiar brands, and Constellation has those, particularly in the beer business. The company can also expand its revenue substantially by applying the success it has had with beer to the wine and spirits parts of its enterprise.

Furthermore, Constellation offers a low valuation, though investors may have to take a closer look to see the opportunity. Its trailing P/E ratio of 47 makes it appear expensive, though asset impairments caused that spike in the earnings multiple. Thus, its forward P/E ratio of 13, which does not include such one-time occurrences, is likely a more appropriate measure of its valuation.

That low forward P/E ratio may be the reason that Constellation is currently Berkshire's fastest-growing holdings in terms of share growth. It began investing by buying more than 5.6 million shares in the fourth quarter of 2024. It was followed by purchasing an additional 6.4 million shares in Q1 and 1.4 million more in the second quarter. Investing so much at a time when Berkshire has been a net seller of stocks likely indicates that it sees an opportunity that other investors have overlooked.

Buying Constellation Brands stock

When evaluating Berkshire Hathaway's high-yield dividend stocks, Constellation is likely the one with the best growth and income holding.

Admittedly, it does not have the highest dividend yield of the eight stocks, and its business has struggled.

However, it benefits from ties to well-known beer brands, and opportunities for growth in the wine and spirits businesses could bring significant revenue increases. Additionally, the 13 forward P/E ratio suggests that investors have become overly pessimistic, indicating that Berkshire and its followers could profit as more investors recognize the stock's growth potential.

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Ally is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool recommends Constellation Brands, Diageo Plc, and Kraft Heinz. The Motley Fool has a disclosure policy.