2 top passive income ideas from Warren Buffett’s portfolio

Charlie Carman examines two dividend stocks in Berkshire Hathaway’s investment portfolio that could boost his passive income streams.

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“If you don’t find a way to make money while you sleep, you will work until you die“. Billionaire investor Warren Buffett‘s words will strike a chord with all investors like me who are keen to build multiple sources of passive income that can take care of their living expenses.

But where should I look for dividend shares that could provide me with a second income?

Again, I’d turn to Buffett for inspiration. Let’s explore two stocks owned by his holding company, Berkshire Hathaway.


A longstanding constituent of Berkshire’s portfolio, soft drinks giant Coca-Cola (NYSE:KO) offers a dividend yield just under 3%.

Although there’s always a risk with passive income investing that companies can cut, or suspend, their dividends, Coca-Cola is about as reliable as it gets. It has an unbroken 61-year dividend growth streak.

Brand recognition and a simple business model are qualities that have served this global giant well over decades. Today, Coca-Cola’s brand portfolio comprises more than 500 labels sold in over 200 countries around the globe.

That said, there’s no room for complacency and the company continues to increase its marketing spend. This hasn’t damaged the bottom line though. In its fourth quarter results, Coca-Cola revealed a 15% rise in organic revenues to $10.1bn and underlying operating income grew 21% to $2.1bn.

A price-to-earnings ratio of 28.3 looks a little high, and there’s a risk further growth in the Coca-Cola share price could be subdued. Nonetheless, I already have a stake in the company and I’ll consider adding to my position if I like what I see in the firm’s Q1 FY23 results due on 24 April.


My second passive income idea from Buffett’s stock market positions is another drinks titan, but of the alcoholic variety. Diageo (LSE:DGE) is the only FTSE 100 stock the billionaire owns.

This company is another Dividend Aristocrat. The stock currently yields a respectable 2.1%.

From Guinness to Tanqueray gin, Diageo’s brand portfolio is packed full of familiar names. And business has been booming. In its interim six-month results for FY23, the company posted a 18.4% increase in net sales to £9.4bn, as well as a 15.2% rise in operating profit to £3.2bn.

Sales growth is especially strong in the firm’s scotch and tequila product categories. Diageo is concentrating on its premium brands in particular, which made up the lion’s share of its revenue expansion in the first half of the financial year.

The strong pricing power associated with Diageo’s premium products is an attractive feature that helps to support the company’s margins in the inflationary environment. Plus a new £0.5bn share buyback that’s already in action should continue to add value for shareholders.

One key risk facing the firm is the 10% increase in alcohol duty contained in the small print of chancellor Jeremy Hunt’s budget. This could act as a headwind to further growth in the Diageo share price. Indeed, Nuno Teles, Managing Director of Diageo GB, lamented the move as a “punitive and inflationary tax hike”.

Nonetheless, robust finances and an intensifying focus on quality should help to steer Diageo through any challenges, in my view. If I had some spare cash, I’d invest in this dividend stock today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Carman has positions in Berkshire Hathaway and The Coca-Cola Company. The Motley Fool UK has recommended Diageo Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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