They say that imitation is the sincerest form of flattery. Even though I’m a firm believer in making my own investment choices, imitating a legendary investor like Warren Buffett is different. I’m not going to blindly follow him, but if I invested in some of his portfolio, I think I could build up a very tidy passive income from dividends.
Starting at the top
The highest-yielding stock currently in his portfolio is Citigroup. The global banking giant has a yield of 5.2%.
Unlike UK banks during the pandemic, US banks weren’t under pressure from regulators to stop paying out dividends. This meant that Citigroup continued to pay income to investors. It has a strong track record for the past decade of doing so, increasing the dividend per share steadily over time.
Looking forward, I’m optimistic about US banks in the same way as UK ones. The high US interest rate above 5% is allowing profits to grow with a larger net interest margin. As Citigroup has a large retail presence in America, it’s enjoying the benefits already.
A great defensive addition
Another addition I’d look to copy from Buffett is Kraft Heinz. The branded food company pays out quarterly dividends, which have been $0.40 per share for the past few years. Some would argue that the dividend isn’t growing and see this as a red flag. I take this point, but would say that it’s an extremely dependable dividend payment that’s unlikely to get cut any time soon.
With the current dividend, the yield works out to be 4.92%.
As well as the income benefits, Kraft Heinz is a defensive stock. Everything from its beloved ketchup brand to chocolate bars are set at an affordable price level. So even if we get a recession in the UK or US next year, demand for the products should remain strong. This makes it a useful addition to a portfolio.
Not buying everything
Aside from the two options, I’d still make sure I was smart about which Buffett stocks to include. For example, I wouldn’t buy Coca-Cola. Even though much is made about the sheer amount of money Buffett gets paid from his Coca-Cola shares, it’s because he’s owned them for so long. The current yield is just above 3%, not attractive enough for me to want to invest.
This illustrates a good point, that each investor is unique. Depending on when someone purchased a stock, or what they have as a particular goal, it will influence future decision-making. Just because Buffett owns a stock doesn’t mean I should blindly follow.
The numbers
It’s important I acknowledge that no dividend is guaranteed. Future yields can change, which could mean it take more or less time than I think to achieve my target.
But if I invested in the half dozen highest-yielding stocks Buffett owns, I’d have an average yield of 4.45%. If I parked £500 a month in these firms and reinvested the proceeds, I could have a pot worth £140k by year 16. From here, I wouldn’t have to invest further and could enjoy £500 a month in income.
