3 Defensive Dividend Stocks from Warren Buffett's Portfolio

Global financial markets have been jittery amid fears that the Federal Reserve may have kept interest rates too high for too long, raising the risk of a U.S. recession. In times of macroeconomic volatility and recessionary fears, finding reliable investments that offer both stability and income becomes crucial. 

That being said, Warren Buffett, the legendary investor and CEO of Berkshire Hathaway (BRK.A)(BRK.B), has long been known for his strategic investments in companies that offer stability, reliable dividends, and long-term growth potential. 

In his latest annual letter to shareholders, Warren Buffett highlighted that Berkshire Hathaway returned an astonishing 4,384,748% from 1965 to 2023, far outshining the S&P 500 Index’s ($SPX) 31,223% gain over the same period. This remarkable performance underscores the “Oracle of Omaha’s” unmatched ability to deliver extraordinary value and growth. 

Here are three buy-rated dividend-paying stocks from Warren Buffett’s portfolio that can offer stability and a reliable income stream in the face of economic turbulence. 

Dividend Stock #1: Visa 

Commanding a market cap of around $475.2 billion, California-based Visa Inc. (V) is a global powerhouse in digital payments, driving seamless transactions across over 200 countries and territories. Serving financial institutions and merchants worldwide, Visa offers a suite of branded payment products, including credit, debit, and prepaid cards, alongside value-added services like fraud prevention, loyalty programs, and digital tokenization.

Berkshire Hathaway’s latest 13F filings reveal that as of March 31, Buffett held approximately 8.3 million Visa shares worth $2.3 billion. This makes Visa the 14th largest holding in Berkshire Hathaway’s portfolio, accounting for 0.70%. Shares of this digital payment giant have climbed roughly 8.3% over the past 52 weeks but are down marginally on a YTD basis.  

In terms of valuation, the stock is priced at 26.06 times forward earnings and 14.31 times sales, much lower than its own five-year averages of 31.47x and 17.56x, respectively. 

The company has a respectable 15-year streak of consecutive dividend increases.  On July 23, alongside its Q3 earnings results, Visa declared a quarterly dividend of $0.52 per share, set to be distributed to its shareholders on Sep.3. This brings its annualized dividend to $2.08, offering a 0.78% dividend yield. 

With a conservative payout ratio of just 18.63%, Visa is channeling most of its earnings into growth, while also keeping ample room for future dividend boosts. Additionally, Visa demonstrated its commitment to shareholder value by investing $4.8 billion in share buybacks during Q3, with $18.9 billion still available for future repurchases.

Even though the company fell short of top-line estimates, Visa’s net revenue of $8.9 billion surged 9.6% year over year, fueled by a 7% annual increase in payments volume and a 10% rise in processed transactions. Additionally, Visa’s adjusted EPS of $2.42 shot up 12% year over year, narrowly edging past Wall Street’s forecasts. As of June 30, the company’s cash, cash equivalents, and investment securities reached an impressive $19.7 billion.

During the Q3 earnings call, management indicated that Q4 payments volume and processed transactions are expected to grow at a rate similar to Q3. For fiscal 2024, despite the challenges posed by lower currency volatility and macroeconomic issues in Asia affecting volumes, Visa’s expectations for adjusted net revenue growth remain unchanged. The company continues to project low double-digit growth in adjusted net revenue.

Analysts tracking Visa forecast the company’s profit to climb 13% year over year to $9.91 per share in fiscal 2024, and rise another 11.8% annually to $11.08 per share in fiscal 2025. 

V stock has a consensus “Strong Buy” rating overall. Of the 34 analysts covering the stock, 25 advise a “Strong Buy,” four suggest a “Moderate Buy,” and the remaining five recommend a “Hold.”

The average analyst price target of $303.44 indicates a potential upside of 16.8% from the current price levels. The Street-high price target of $330 suggests that V stock could rally as much as 27%. 

Dividend Stock #2: Chevron 

Valued at $266.23 billion by market cap, California-based Chevron Corporation (CVX) stands at the forefront of the global energy landscape, committed to providing affordable, reliable, and cleaner energy solutions. As a leading integrated energy giant, Chevron excels in producing crude oil (CLU24) and natural gas (NGZ24), crafting high-quality fuels, lubricants, and petrochemicals, and advancing cutting-edge technologies.  

In fiscal 2024 Q1, Warren Buffett’s Chevron stake stood at 123 million shares, worth a remarkable $19.4 billion. This hefty investment cements Chevron as Berkshire Hathaway’s 5th largest holding, representing nearly 5.9% of the portfolio. Shares of this energy giant have dipped roughly 9.3% over the past 52 weeks and 2.8% on a YTD basis.   

From a valuation perspective, CVX stock is priced quite attractively compared to historical norms. Priced at 11.65 times forward earnings, the stock is trading well below its own five-year average of 140.29x.  

Chevron is highly committed to rewarding its shareholders, boasting a solid track record of 36 years of consecutive dividend increases. On Aug. 2, the company announced its Q2 earnings results along with a $1.63 per share quarterly dividend, payable on Sep.10. Chevron’s annualized dividend of $6.52 per share translates to a highly appealing 4.41% dividend yield. 

In Q2, the company delivered a remarkable $6 billion to shareholders, marking the ninth consecutive quarter of returning over $5 billion. This impressive payout includes $3 billion in dividends and $3 billion in share repurchases. The energy giant reported total revenue of $51.2 billion during the quarter, marking a 4.7% annual jump and topping estimates by a slight margin. 

On the other hand, hurt by lower refining margins and pressure from delays in the pending acquisition of Hess Corporation (HES), Chevron’s adjusted EPS of $2.55 dropped a notable 17.2% year over year and missed Wall Street’s projections. Nevertheless, management remains optimistic. CEO Mike Wirth emphasized, “Despite recent operational downtime and softer margins, we remain poised to deliver significant long-term earnings and cash flow growth.” 

Analysts tracking Chevron project the company’s profit to decline 6.3% year over year in fiscal 2024 before soaring a notable 21.9% annually to $14.99 per share in fiscal 2025. 

CVX stock has a consensus “Moderate Buy” rating overall. Of the 20 analysts covering the stock, 12 advise a “Strong Buy,” two suggest a “Moderate Buy,” and the remaining six recommend a “Hold.”

The average analyst price target of $178.95 indicates a potential upside of 23.4% from the current price levels. The Street-high price target of $206 suggests that CVX stock could rally as much as 42%. 

Dividend Stock #3: T-Mobile US

Washington-based T-Mobile US, Inc. (TMUS) is redefining wireless with its dynamic 4G LTE and groundbreaking nationwide 5G networks, delivering exceptional connectivity. With a market cap of around $226.8 billion, the company serves customers through its flagship brands, T-Mobile, Metro by T-Mobile, and Mint Mobile. 

During Q1, Warren Buffett held roughly 5.2 million shares of T-Mobile, worth around $855.6 million. This investment positions T-Mobile as Berkshire Hathaway’s 25th largest holding, accounting for almost 0.3% of the portfolio. 

Shares of T-Mobile have soared about 41% over the past 52 weeks and 21.1% on a YTD basis, easily overshadowing the broader SPX’s respective gains of 19.6% and 12% during both these periods. 

On June 13, the company declared a quarterly dividend of $0.65 per share, payable to its shareholders on Sept. 12. Its annualized dividend of $2.60 per share translates to an attractive 1.34% dividend yield. With a conservative payout ratio of 24.03%, T-Mobile leaves ample room for further dividend enhancements. 

Priced at 20.43 times forward earnings, TMUS stock is trading much lower than its own five-year average of 38.04x. 

Shares of T-Mobile jumped almost 4% on Jul. 31 after the company announced its Q2 earnings results, which soared beyond Wall Street’s top and bottom line predictions. The company posted total revenue of $19.8 billion, marking a 3% improvement from the year-ago quarter, and was slightly above Wall Street's estimate of $19.6 billion. 

Plus, EPS of $2.49 climbed a notable 22.9% annually, blowing past projections by a 9.7% margin. During the quarter, core adjusted EBITDA increased by 9% annually to $8 billion, while adjusted free cash flow also hit a record high at $4.4 billion, reflecting a remarkable 54% year-over-year boost. 

In Q2, the company returned approximately $3 billion to shareholders, including $2.3 billion in stock repurchases and $759 million in dividend payments.

For fiscal 2024, management raised its customer and cash flow guidance, now expecting postpaid net customer additions to range between 5.4 million and 5.7 million, while adjusted free cash flow is anticipated to be between $16.6 billion and $17 billion. Also, core adjusted EBITDA is projected to land between $31.5 billion and $31.8 billion. 

Analysts tracking T-Mobile forecast the company’s profit to soar 32% year over year to $9.15 per share in fiscal 2024, and grow another 20.7% annually to $11.04 per share in fiscal 2025. 

TMUS stock has a consensus “Strong Buy” rating overall. Of the 22 analysts covering the stock, 17 advise a “Strong Buy,” three suggest a “Moderate Buy,” and the remaining two recommend a “Hold.”

The average analyst price target of $200.33 indicates about 3.2% potential upside from the current price levels. The Street-high price target of $225 suggests that TMUS stock could rally as much as 15.8%.