How Warren Buffett Doubles His Money With Dividends

warren buffett is widely considered one of the greatest investors of all time with a staggering net worth of 80 billion dollars if you're a fan of the channel then you know i like to learn from the experience of buffett and his partner in crime charlie munger much of their success comes from investing in companies with sustainable competitive advantages and holding them long term although his company berkshire hathaway chooses not to pay a dividend a significant number of their holdings do in fact his investments are generating more than 4 billion a year in dividend income throughout this video i'm going to explain how buffett's massive cash flow lets him consistently double his money on many stocks my name is zach and you should leave a like and subscribe to the channel if you enjoy the video today i want to show you how warren buffett's long-term investing strategy generates significant dividend income with huge yields on cost warren buffett is what's known as a value investor this investment strategy involves picking stocks that are trading for less than their intrinsic or book value however his strategy evolved over time with a great deal of influence from charlie munger i've been taught by ben graham to buy things on a quantitative basis look around for things that are cheap and that i was taught that say in 1949 or they made a big impression on me so i went around looking for what i call use cigar butts of stocks and the cigar but approach to buying stocks is that you walk down the street and you're looking around for cigar butts and you find this honestly this terrible looking soggy ugly looking cigar one puff left in it but you pick it up and you get your one puff disgusting you throw it away but it's free i mean it's cheap and then you look around for another soggy you know one puff cigarette well that's what i did for years it's a mistake uh although you make money doing it but you can't make it with big money it's so much easier just to buy wonderful businesses so now i would rather buy a wonderful business at a fair price than a fair business at a wonderful price you really want to be in a wonderful business because the time is the friend of the wonderful business you keep compounding it keeps doing more business and you keep making more money this transition to focusing on the quality of the underlying business was learned through their investment and seized candy but we both kept learning all the time so that the man we were five years earlier was less sensible than the man who ultimately was there and see's candy did teach us both a wonderful lesson and it'll teach you a lesson if i tell you the full story if sea's candy had asked one hundred thousand dollars more born and i would have walked that's how dumb we were at that time ten thousand more and one of the reasons we didn't walk is while we were making this wonderful decision we weren't going to pay a dime more ira marshall said to us you guys are crazy there's some things you should pay up for you're underestimating quality well warren and i instead of behaving the way they do in a lot of places we listened to the criticism we changed our mind and that is a very good lesson for for anyone the ability to take criticism constructively is a well think of all the money we made from accepting that one criticism and if you count the indirect effects from what we learned from buying seas you can say that berkshire's been built partly by learning from criticism now i'll tell you exactly why walking away from seized candy would have been a terrible idea in 1972 they bought the entire company for 25 million dollars that year the business had 31 million dollars in sales and made 2.083 million dollars in profits after taxes additionally the business needed a working capital of 8 million to operate based on buffett's valuation of seas he was unwilling to pay more than the 25 million dollars he offered as of 2007 c's candy has earned berkshire hathaway 1.35 billion dollars in pre-tax earnings that year c's sales were 383 million netting over 82 million dollars in pre-tax profit so buffett is well over tripling his initial investment in c's candy every single year based on this it was totally irrelevant whether he paid one hundred thousand one million or heck even ten million dollars more in 2019 buffett said that seas has produced well north of two billion dollars in pre-tax earnings and the chocolate company remains a cash cow for berkshire hathaway c's candy exemplifies what buffett looks for in a business the company has built a competitive advantage through significant brand and customer loyalty buffett has said long-term competitive advantage in a stable industry is what we seek in a business if that comes with rapid organic growth great but even without organic growth such a business is still rewarding we will simply take the lush earnings the business and use them to buy similar businesses elsewhere this is exactly what he did with c's candy see's candy has paid everything virtually out to us that they've earned because they do not have the ability within sea's candy to use large sums which they earn uh intelligently in their business so it'd be an enormous mistake for c's candy to retain money so they distributed berkshire and we hope that we move that around in some other area where that dollar becomes worth a dollar ten cents or a dollar twenty cents in terms of present value terms if c's candy were a stand-alone company we would simply pay out a lot of the the earnings practically all of the earnings and dividends just like we do now except it goes to berkshire the company had limited potential for scaling but was able to provide a reliable cash flow this mindset of buying great businesses at fair prices would bleed into all of buffett's future investments warren buffett does not specifically target dividend stocks yet the majority of his holdings pay dividends this correlation comes from the types of businesses he targets dividend stocks are often highly profitable and mature companies with proven business models this overlaps heavily with buffett's investment preferences as i mentioned at the beginning of the video warren buffett's berkshire hathaway earns around 4 billion dollars in annual dividends this number doesn't even include returns from companies where they have full ownership like sea's candy one of buffett's best performing stocks is the coca-cola company which he's owned since 1988. this year that investment will pay more than 656 million dollars in dividend income with an initial cost basis of three dollars and 24 cents per share buffett now boasts a 50.5 dividend yield on cost this means that he will be more than doubling his initial investment every two years through dividends alone coca-cola has been consistently growing their dividend for over 58 years and there seems to be no indication that this will stop anytime soon this is a classic example of investing in a company with strong competitive advantages and holding long term if you want to learn more about coca-cola i did a full stock review on the company and will provide a link in the description of this video in 2016 warren buffett invested heavily into apple and berkshire hathaway now owns over 5.9 percent of the company he's already seen a significant return on investment but i think it's poised to be his next coca-cola this year he's set to earn 822 million dollars in dividends which is the most of all his holdings i don't know his exact cost basis but given the time he invested i assume the yield on cost is currently around two to two and a half percent apple is currently the most valuable brand in the world and has massive customer loyalty additionally it has nine years of dividend growth and a 10.5 percent five-year compound annual growth rate i would not be surprised at all if in 30 years buffett would be doubling his initial investment every two years through dividends similar to coca-cola if you want to learn more about apple i also did a stock review on that company and will provide a link in the description as well buffett has many other dividend stocks with a huge yield on cost this is accomplished through the long-term nature of his investments moody's the credit rating risk assessment and data analytics company is another cash cow for berkshire hathaway this year it will pay over 55 million dollars in dividend income with an initial cost basis of only 10 dollars and 5 cents a share berkshire's annual yield on cost is 22.3 percent buffett doubles his initial investment through dividends every four and a half years considering the current price of moody's is around 270 dollars with a 0.8 dividend yield his investment is a prime example of how long-term investing can net massive yield on cost american express is another one of buffett's holdings which pays 260 million dollars in annual dividend income at an initial cost basis of 8.49 per share berkshire hathaway has a 20.3 dividend yield on cost this means that in just under five years they will double their initial investment through dividends alone other notable investments such as bank of america pay 743.6 million in annual dividends wells fargo pays 659.3 million craft heinz pays 521 million u.s bank court pays 222.5 million and jpmorgan chase pays 214.2 million these are just some of the many dividend stocks in warren buffett's portfolio the main takeaway here is that when you invest in companies with sustainable competitive advantages over a long time horizon you can receive huge yields on cost and massive returns i hope this video provides some interesting ideas to think about and let me know in the comments if you like this topic thank you for watching dividend data i greatly appreciate if you could leave a like and subscribe to the channel if you follow me on twitter link in the description you can get real-time updates of my buys and dividends coming in you can support the channel on patreon and be a part of making these videos happen the link is in the description please leave a comment below and thank you for watching you

Channel: Dividend Data

Views: 277,539

Keywords: Warren Buffett, Warren Buffett 2020, Warren Buffett Stocks, Warren Buffett Dividends, Investing, dividend stocks, how to double your money, long term investing results, dividend investing strategy, warren buffett stocks for beginners, how to dividends, learn to invest, investing for beginners 2020, stocks, dividend investing for passive income, warren buffett how did he get rich, how did warren buffett start investing, how warren buffett makes money, the power of dividends

Id: 3KkesfwQPqM

Length: 10min 24sec (624 seconds)

Published: Wed Oct 28 2020