Warren Buffett owns these 2 very high yielding dividend stocks. Here’s why they’re great choices for income investors

It’s no secret that Warren Buffett loves dividend stocks. Her Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) the portfolio is full of stocks with a long history of paying attractive dividends. Berkshire’s top 12 stocks all pay dividends.

However, Buffett is not known for investing in stocks with exceptionally high valuations. dividend yields. The Oracle of Omaha, however, has two very high-yielding dividend stocks that are great choices for income investors right now.

Buffett’s ‘secret’ ultra-high dividend stocks

What dividend yield qualifies as ultra-high? The definition I use is four times the yield of SPDR S&P 500 ETF Trust. Since the S&P 500 ETF yield is currently 1.34%, the threshold for ultra-high yield is 5.36%.

You won’t find any super high-yielding dividend stocks in Berkshire Hathaway’s latest 13F filing. But Berkshire owns several stocks offering very high yields in what might be called Buffett’s “secret” portfolio.

Berkshire acquired General Reinsurance in 1998. General Re had acquired New England Asset Management (NEAM) three years earlier. NEAM manages its own investment portfolio separate from Berkshire’s. However, because NEAM is a wholly owned subsidiary of Berkshire, Buffett and Berkshire also own all of the shares it owns.

NEAM’s portfolio includes several very high-yielding dividend stocks. I think two of them particularly stand out: Ares Capital (NASDAQ:ARCC) And VerizonCommunications (NYSE:VZ). Ares Capital is the largest publicly traded company business development company (BDC). Most investors are probably familiar with Verizon, which provides telecommunications services around the world.

Great choices for income investors

Why are Ares Capital and Verizon great choices for income investors? Let’s start with their juicy dividends. Ares Capital’s forward dividend yield exceeds 8.9%, while Verizon’s yield exceeds 6.4%.

Both companies’ dividend programs also have strong track records. Ares has had stable or growing dividends for 15 years, with the highest consistent dividend per share growth over the past 10 years among large BDCs. Verizon has increased its dividends for 17 consecutive years, the longest streak in the U.S. telecommunications industry.

Ares and Verizon have been able to reward shareholders so consistently because they both have strong underlying businesses. Ares is the largest player in the growing U.S. direct lending market. The company is very selective in the deals it closes, with a closing rate of around 5%. Verizon is a leader in providing wireless and broadband services to businesses and consumers.

While many stocks are sporting perfect valuations and the bull market maintains its momentum, Ares Capital and Verizon are sporting attractive valuations. Ares’ forward price-to-earnings ratio is less than 9.2, compared to a multiple of 15.5 for S&P500 financial sector. Verizon shares trade at just over 9 times forward earnings. For comparison, the S&P 500’s forward earnings multiple…

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