Investors gravitate toward Warren Buffett-led Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) for investment ideas and views on the stock market. Berkshire has been in the spotlight in recent weeks because it's outperforming many megacap growth stocks year to date, even as the company's cash position swelled to a record $325 billion.
Investors got a look at Berkshire's stock moves in the fourth quarter of 2024, which included a new position in Constellation Brands(NYSE: STZ) and additional purchasing of Occidental Petroleum(NYSE: OXY). Berkshire continues to hold Chevron(NYSE: CVX), Kraft-Heinz(NASDAQ: KHC), and Coca-Cola(NYSE: KO).
Constellation Brands was hovering near a five-year low before recovering slightly on the news that Berkshire has bought a 3.1% stake in the company -- valued at around $990 million. The beer, wine, and spirits maker has top brands including Corona, Modelo, Victoria, Pacifico, Kim Crawford, Meiomi, SVEDKA, and more.
Operating margins took a huge hit due to supply-chain and inflationary pressures but have since recovered. Meanwhile, revenue growth has steadily ticked higher.
Berkshire's purchase of Constellation was a classic value play. The stock had been under pressure despite good results. Its forward price-to-earnings ratio (P/E) is now just 13, which is dirt cheap, even for a beverage company that tends to sport a discounted valuation relative to the S&P 500(SNPINDEX: ^GSPC).
Constellation has paid a higher annual dividend every year since initiating the payout in 2015. With a yield of 2.3%, the company's stock is a good value for investors to scoop up now.
2. Occidental Petroleum
Berkshire added to its position in Occidental Petroleum in the fourth quarter, boosting its stake to 28.8%. Occidental Petroleum is an exploration and production (E&P) company, with concentrated acreage in the Permian Basin of west Texas and eastern New Mexico. The company also has a chemical business and a growing carbon-capture arm.
Occidental Petroleum's sensitivity to oil prices can cause big swings in its stock price. Adding to the volatility is the company's leveraged balance sheet. It completed its acquisition of fellow E&P CrownRock in August 2024. The deal boosted its free-cash-flow (FCF) generation at the expense of adding leverage to its balance sheet. This is why the company is using excess FCF to accelerate its debt paydown.
Lower oil prices would hinder Oxy's ability to pay down debt, but the company has a sizable margin for error, given its low breakeven prices and efficient asset portfolio. It made the CrownRock acquisition assuming it could generate $1 billion in annual FCF from CrownRock at West Texas Intermediate crude oil prices of $70 per barrel -- which is coincidentally right around the price at the time of this writing. In its January 2024 investor presentation, the company estimated CrownRock's breakeven point to be less than $60 per barrel WTI -- giving it some wiggle room, even at mediocre oil prices.
However, if oil dips into the $50s, Oxy stock could take a big hit because its FCF would plummet and its leverage would become a bigger concern. However, it also has a ton of upside if oil prices rise.
All told, Oxy is a bold bet on oil and gas. But the valuation is cheap, based on its asset portfolio and FCF generation.
Oxy just raised its dividend by 9% to $0.96 per share per quarter -- good for a forward yield of 1.9%.
3. Chevron
Berkshire's fifth-largest holding is Chevron, a position it mainly acquired in 2022. Chevron is probably a better buy than Oxy for investors looking for a foundational holding in the oil patch.
Chevron has an impeccable balance sheet, a geographically diverse asset base, and a massive refining business. So it isn't overly dependent on one region, whereas Oxy is more of a Permian pure play.
When Chevron reported fourth-quarter and full-year results on Jan. 31, it also announced a 5% increase to its quarterly dividend -- marking the 38thconsecutive year Chevron has increased its payout. With a 4.3% yield and a track record of dividend increases, Chevron is a high-yield stock that may appeal to passive-income investors.
4. Kraft Heinz
Berkshire has held Kraft Heinz since 2015, but it hasn't been a great investment, with the stock down 50% over the last 10 years. In 2019, Kraft slashed its quarterly dividend to $0.40 per share and has kept it steady ever since.
Kraft's high debt and slow growth have raised concerns about the sustainability of the dividend, given it's a massive expense for the company. But it's been generating strong free cash flow and has improved its balance sheet since cutting the dividend. As you can see in the chart, its total net long-term debt position is down, and its leverage has also decreased.
Kraft isn't at the top of its game, but the stock is dirt cheap with an 11.3 forward P/E. The dividend yield of 5.3% is a sizable payout for income investors who believe Kraft can continue paying down debt and grow its FCF.
5. Coca-Cola
Coca-Cola stock has roared 13.8% higher over the last month and is now knocking on the door of a new all-time high. The beverage behemoth is known for its global distribution of the flagship Coca-Cola product line. Still, it has been the company's organic brand development and acquisitions that have contributed the most to the investment thesis in recent years.
The company's acquisitions of Topo Chico (sparkling water) and Fairlife (high protein, low sugar milk products) were brilliant in hindsight as Coke has significantly increased the value of these brands. They diversify Coke's lineup beyond soft drinks and high sugar juice products, helping it tap into consumers with different preferences
The company's improved diversification across nonalcoholic beverage categories and global exposure make it a solid long-term investment. Coke has raised its dividend for 62 consecutive years and yields 2.8%.
Five dividend stocks to buy now
Constellation, Oxy, Chevron, Kraft Heinz, and Coca-Cola may not be the fastest-growing companies. However, they all have reasonable valuations and pay dividends, which could make them worth a closer look for investors who want to boost their passive income.
Chevron and Coke stand out as the most reliable choices of the bunch. Investors looking for more value may want to consider Constellation, Oxy, and Kraft, as well.
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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool recommends Constellation Brands, Kraft Heinz, and Occidental Petroleum. The Motley Fool has a disclosure policy.
