Warren Buffett, known for his astute investment strategies, recently made a significant move by acquiring a beaten-down high-yield dividend stock. In the fourth quarter of 2023, amidst a relatively conservative investment approach, Buffett added three stocks to Berkshire Hathaway’s portfolio, including an increase in holdings of an existing position.
When Buffett makes a move, investors take notice. His recent purchase of Chevron (NYSE: CVX), a high-yield dividend stock, raises questions about its attractiveness and whether others should follow suit.
Buffett’s Confidence in Big Oil
Chevron now stands as the fifth-largest position in Buffett’s portfolio, comprising 5.1% of Berkshire’s overall holdings. Buffett initially invested in the oil and gas giant in the fourth quarter of 2020 when Chevron’s stock faced significant challenges due to the COVID-19 pandemic’s aftermath.
Although Buffett reduced his stake in Chevron during the fourth quarter of 2022, selling nearly 2.4 million shares, he reversed course in the fourth quarter of 2023, acquiring an additional 15.8 million shares. This move indicates a renewed confidence in the potential of Big Oil, with Occidental Petroleum also receiving increased attention from Berkshire.
What Makes Chevron Appealing?
Several factors likely contributed to Buffett’s decision to invest in Chevron once again. Valuation appears to be a significant driver, as Chevron’s shares experienced a downturn following the announcement of its acquisition of Hess for $53 billion. Consequently, the stock now trades at an appealing forward price-to-earnings ratio of 11.6x.
Despite skepticism surrounding the Hess deal, Wall Street analysts remain largely bullish on Chevron’s prospects. Additionally, Buffett may share Occidental CEO Vicki Hollub’s forecast of an impending oil supply shortage, influencing his investment decisions.
Moreover, Chevron’s robust dividend yield, currently exceeding 4.2%, coupled with its impressive track record of dividend growth over 37 consecutive years, makes it an attractive proposition for income-oriented investors.
Is Chevron Worth Considering for Your Portfolio?
While Buffett’s investment decisions carry weight, it’s essential for investors to align their choices with their own objectives and risk tolerance. However, two types of investors may find Chevron particularly appealing at present.
Value investors, seeking opportunities in a market with limited alternatives, could benefit from Chevron’s attractive valuation and solid fundamentals. Similarly, income investors may view Chevron as a reliable income generator with its consistent dividend payouts.
Conversely, growth investors may find Chevron less enticing due to its moderate growth prospects compared to other opportunities in the market. However, Chevron’s discounted valuation and stable dividend yield could still offer compelling reasons for consideration.
In Conclusion
Warren Buffett’s recent acquisition of Chevron underscores the potential opportunities presented by beaten-down high-yield dividend stocks. While his move warrants attention, investors should conduct thorough research and consider their own investment goals before following suit.
