Warren Buffett’s Berkshire Hathaway has been selling dividend stocks. The company’s 13F filing earlier this week revealed that it has completely sold out of its positions in Abbvie and Bristol-Myers Squibb. Furthermore, it has reduced its previously huge stake in Verizon Communications by 99% and its stake in STORE Capital by just under 40%.
To me, this is a clear sign that Buffett thinks that the most attractive stocks in this market are not in dividend stocks. So should I be joining the Oracle of Omaha in unloading my income stocks and looking elsewhere for buying opportunities?
Selling dividend stocks
This week’s report is just the latest update in what has been an extended process of selling dividend stocks from Warren Buffett’s company. Berkshire has been steadily selling shares of Abbvie and Bristol-Myers — as well as Merck and Co — for the last 12 months.
I think it’s highly unlikely that this is the result of Buffett having changed his mind about the prospects for dividend stocks. Charlie Munger stated in an interview that Berkshire Hathaway’s reason for owning the pharmaceutical stocks was to generate income while interest rates were low.
My instinct is that something similar might be true of Verizon and STORE Capital. Both are dividend stocks that Berkshire might have been using as a temporary measure to provide dividend income.
Berkshire didn’t go all out in selling dividend stocks and indeed it bought significant amounts of both Chevron and Citigroup, two stocks that have significant dividend yields. But, unlike pharmaceuticals, energy and banking are two sectors that Buffett knows well, which causes me to think that these might be more than just income plays for Berkshire.
Should I sell my dividend stocks?
I also own a number of stocks in my portfolio that are popular with investors seeking dividend income, most notably Legal & General, Enterprise Products Partners, and Realty Income. So should I be following Buffett’s lead and selling these to pursue better opportunities?
In general, these are stocks whose share prices have held up fairly well recently. Shares in Realty Income, for example, are down less than 5% this year.
Compare that to Apple, whose shares have fallen around 22% since January and it becomes easy to see why selling the dividend stock to buy the more growth-oriented company might be an attractive idea.
Ultimately though, I think that the most important thing is to be careful and to make sure that I think my decisions through properly. Buffett is noted for saying that the stock market is a device for transferring wealth from the impatient to the patient.
When market volatility is high, the market can offer some very attractive opportunities. At the moment, growth stocks across the board are falling quite significantly.
There might come a time when the right thing for me to do is to sell some of my dividend stocks and reinvest the money into other companies. But I’m only going to do this when I’m extremely confident that I’m getting more for my money with the company that I’m buying than I’m giving up with the company that I’m selling.
