Warren Buffett likes buying businesses. He’s also very good at it. You don’t become one of the world’s richest billionaires and most famous investors without a knack for spotting a solid business model.
Buffett is serious, too, about how solid he wants his investments to be. He likes battle-tested companies he can hold for decades. And the qualities that provide corporate staying power are often the same qualities that enable a company to pay dividends reliably.
It’s not surprising, then, that several of Buffett’s favorite stocks pay dividends — and at good yields. Here’s a look at five of those stocks which, combined, could generate a five-digit passive income stream down the road.
1. Chevron (NYSE: CVX)
Buffett first bought shares of Chevron in 2020. But he recently tripled his position in the energy company — a sign of his confidence in Chevron’s long-term prospects. Chevron is now the fourth-largest position in Berkshire Hathaway’s stock portfolio.
Chevron’s current annual dividend is $5.68 per share, which works out to a 3.7% yield. The company has increased its dividend annually for the past 35 years.
2. Paramount Global (NASDAQ: PARA)
Media company Paramount Global is a new position for Buffett. He bought up 68 million shares for Berkshire in the first quarter of this year.
Paramount’s dividend dates to 2006. The history is less consistent than Chevron’s, but the annual dividend did double between 2013 and 2022. The current yield for Paramount is 3.9%.
3. Coca-Cola (NYSE: KO)
Buffett first bought a piece of Coke back in 1988. While Buffett hasn’t increased the position this year, Berkshire does own more than 9% of the beverage company.
Coca-Cola has been increasing its dividend payments annually for 61 years. The current yield is 2.9%.
4. Bank of America (NYSE: BAC)
Bank of America is Berkshire’s second-largest stock position. Berkshire first reported ownership in the bank in 2017. Today, the position totals more than 1 billion shares.
Bank of America’s dividend dates to 2005, though it was a lean payout between 2008 and 2017. The current yield is 2.5% based on annual payments totaling $0.84.
5. Citigroup (NYSE: C)
Buffett closed out his position of Wells Fargo earlier this year and picked up 55 million shares of Citigroup instead.
Citigroup’s yield of 4.2% is the highest on this list. Citigroup’s dividend, like Bank of America’s, faltered in the years following the 2008 financial crisis. But in recent years, the shareholder payout has grown, from $0.64 annually in 2016 to $2.04 in 2021.
Getting to $10,000 in passive dividend income
The average dividend yield across these five stocks is 3.48%. To turn that yield into $10,000 in annual passive income, you’d need roughly $290,000 in the dividend-paying assets.
Chances are, you don’t have an extra $290,000 sitting around. But you can build to that number with some planning. As you’ll see in the table below, investing $960 monthly for 15 years sets you up to reach that $290,000 milestone.
In case $960 monthly is a stretch right now, the table also shows projections for smaller monthly investments.
Projected Balance After 15 Years
Approx. Passive Income at 3.48% Yield
The numbers assume your investments grow 7% on average annually. That’s a reasonable growth rate for periods of 10 years or more — as long as you reinvest your dividends.
Next steps to passive income
If you’re committed to developing a passive income stream with dividend stocks, your next step is research. Dive deeper into these Buffett stocks and other companies that interest you. Then, make your plan and start investing.
Now’s a good time to kick off that plan, too. Stock prices are down which, in turn, pushes yields higher. Those trends create opportunities for the longer-term investor who, in Buffett’s words, is ready to “be greedy when others are fearful.”
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Catherine Brock has positions in Coca-Cola. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.