Few would argue Warren Buffett doesn’t have a golden touch when it comes to investing. He has racked up over 4 million percent returns at Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) since taking over as chairman in 1965. The annualized 20% returns are double that of the S&P 500 over the same time frame. It’s why investors pore over every 13F filing the company files with the SEC hoping to gain insights from Warren Buffett stock buys and sells.
What is not so well known is Berkshire Hathaway isn’t his only stock playground. In 1998 he bought General Re. Just a few years prior, however, the reinsurer itself acquired specialty investment company New England Asset Management (NEAM). Today it is a subsidiary of Berkshire with $610 million in assets under management.
With its own stock portfolio, NEAM is essentially a secret garden of hidden investment treasures that are part of Berkshire Hathaway. The largest holding is the SPDR S&P 500 ETF Trust (NYSE:SPY), which accounts for over 14% of the total. What follows are three top-yielding Warren Buffett dividend stocks hiding in NEAM that are also great buys for you in 2024.
Ares Capital (ARCC)
Ares Capital (NASDAQ:ARCC) is the largest publicly traded business development company (BDC) in the U.S. With a market capitalization of over $11.6 billion, it invests in middle-market companies often neglected by big bank lenders. Ares focuses on generating high-quality income from its investments, as well as capital appreciation by taking equity stakes in the businesses. Worth almost $22 billion, its diversified portfolio contains some 490 companies across various industries and geographies.
The BDC has an enviable track record of delivering strong financial performance for its investors. Since its IPO in 2004, Ares generated a total return of over 900%, almost double the performance of the S&P 500. It is well-positioned to benefit from an economic recovery and the rising demand for customized financing solutions. Its high use of leverage, however, could impact performance during a recession. It could exacerbate losses.
The high-interest rate environment we’re in explains why the stock is up only 8% over the past year, but that’s not the whole picture. Ares dividend yields 9.4% which increased its total return to over 20% last year. And much of Ares portfolio investments are through floating interest rates. Such investments historically perform quite well, even in recessions. About 84% of its new investments are floating rate loans.
Ares Capital has ample liquidity and access to low-cost funding sources to support its growth strategy. The BDC should be on an investor’s watch list at the least if not a part of their portfolio.
AT&T (T)
AT&T (NYSE:T) is something of a contrarian pick amongst NEAM’s dynamic dividend stocks. The telecom slashed its dividend in half in 2022 when it spun off its WarnerMedia division. Yet Ma Bell used the proceeds to pay down some of its significant debt load and though lower, the dividend yields a healthy 6.4%. In fact, the dividend is more sustainable now without the drag of the entertainment business.
It took some time for AT&T’s stock to recover but as the national 5G infrastructure rollout continues look for the telecom to excel. The new standard means download speeds will increase for the first time in a decade, which will encourage even greater customer usage. Data consumption is one of the most profitable portions of AT&T’s business.
Higher speeds will also encourage more customers to use its broadband services. In September AT&T surpassed 20.7 million fiber customers. It’s on track to meet its goal of 30 million fiber customers by 2025. It anticipates adding 1 million such customers for all of 2023 marking the sixth consecutive year it has done so.
It’s no longer a growth stock but is still a reliable income generator. This is why dividend investors continue buying shares.
Kinder Morgan (KMI)
One of the strongest arguments in favor of Kinder Morgan (NYSE:KMI) is it is the largest natural gas pipeline operator in North America, with a network of 82,000 miles of pipelines. It also owns and operates 140 terminals, 700 billion cubic feet (Bcf) of storage capacity, and 5.4 Bcf of renewable natural gas generation capacity. This gives it a competitive advantage and exposure to the growing demand for natural gas, which is a cleaner and cheaper alternative to coal and oil.
Kinder Morgan faces limited commodity price fluctuation exposure because it operates on long-term, fixed-fee contracts. It gets paid by simply making the transportation and storage capacity available. It doesn’t matter if the customer takes the product or not. That positions it to benefit from the growing demand for natural gas. Also, the need for more pipeline infrastructure will fuel further expansion.
Kinder Morgan stock was flat over the past year but rose 12% in the last quarter. That helped lift its dividend yield to 6.3%, which is well above the S&P 500’s 1.5% yield. Kinder Morgan has a strong balance sheet. Its dividend is well supported and management supplements it with a stock buyback program. It’s no wonder why the oil and gas stock is part of NEAM’s portfolio.
On the date of publication, Rich Duprey held a LONG position in T stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
