It's no secret that Warren Buffett-led Berkshire Hathaway (BRK.A -0.39%) (BRK.B -0.56%) has been a net seller of stocks in 2024 -- trimming positions in top holdings like Apple and Bank of America. The sales have added to Berkshire's cash position, which now sits at a record $325 billion.
While the move could signal that Buffett and his team view the broader market as overvalued, that doesn't mean they are bearish on all stocks. Berkshire still holds sizable positions in Occidental Petroleum (OXY 0.75%) and Chevron (CVX 0.01%) and even had a new addition in Pool Corporation (POOL -1.37%).
Here's what makes all three dividend stocks buys in December.
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Playing in the oil patch with Occidental Petroleum can help you procure more plentiful passive income
Scott Levine (Occidental Petroleum): The Berkshire Hathaway portfolio doesn't feature many oil and gas stocks. However, that's not to say that the Oracle of Omaha has zero interest in the energy sector. In fact, exploration and production company Occidental Petroleum is the sixth-largest holding in the portfolio with a 4.3% weighting. With its recent report of strong third-quarter 2024 financial results recently, it now seems like an especially attractive investment opportunity for those looking to supplement their passive income streams with its 1.7% forward-yielding stock.
Falling about 16% since the start of the year, Occidental Petroleum stock has failed to track the upward trajectory of the S&P 500, but for those considering a position, today provides a great opportunity. One major catalyst for the stock's decline this year is the analysts' commentary, which reveals bearish stands on Occidental Petroleum -- often stemming from concerns that affect the company in the immediate future. While this motivated short-term investors to click the sell button, those with a longer investing horizon (our favorite type of investors) will find the sell-off a much-appreciated buying opportunity.
The company's strong third quarter featured a variety of successes, such as strong performance from the Permian, including recently acquired assets from CrownRock. While analysts believed Occidental Petroleum would report earnings per share (EPS) of $0.74, the company blew past expectations, reporting adjusted EPS of $1.00 for the third quarter of 2024. But that's hardly the only noteworthy aspect of the company's recent quarter. Pivoting to the cash flow statement, investors will find that the company generated strong operating cash flow -- about $3.8 billion, a 21% year-over-year increase. Plus, it strengthened its balance sheet by paying down nearly $4 billion in debt, representing about 90% of its short-term target.
Occidental Petroleum is worthy of strong consideration for investors seeking an oil dividend stock that bears the Warren Buffett imprimatur.
When it comes to generating passive income, there's no better Buffett stock than Chevron
Daniel Foelber (Chevron): I agree with my colleague, Scott, that Oxy is an excellent beaten-down dividend stock to buy now. But Chevron is best-in-breed for investors who prioritize dividend reliability.
Chevron has had 37 consecutive years of dividend raises and yields 4%. Sure, fellow Buffett holding Kraft Heinz (KHC 0.43%) has a higher yield at 5%. But Kraft hasn't raised its dividend in over four years. In fact, it slashed its dividend by 36% in 2020. So, when it comes to dividend reliability and yield, Chevron is at the top of the list alongside longtime Buffett stock Coca-Cola.
Chevron has diversified its business beyond oil and gas and has a growing low-carbon portfolio. However, some investors may still wonder why Chevron is a buy when oil prices are falling. At the end of the day, this is still a company whose margins are heavily impacted by oil and gas prices. Chevron can't control commodity prices, but it can (and has) positioned its portfolio so that it can break even at lower prices.
There are a lot of factors that contribute to the profitability profile of an oil and gas play. Some regions have easier reserves to extract and refine, making them more valuable. There are also labor considerations, materials cost, regulations, permitting, geopolitical risks, and more.
Chevron has transformed its portfolio so 75% of locations can break even below $50 per West Texas Intermediate (WTI) crude oil barrel. The U.S. benchmark currently sits at $69 per barrel, which gives Chevron a sizable margin for error. By comparison, many pure-play exploration and production companies can't break even at oil prices that low, so their margins will get squeezed or could even turn negative as oil prices fall.
To top it all off, Chevron has an impeccable balance sheet -- providing a cushion to endure lower oil prices even if they fall below $50.
Add it all up, and Chevron stands out as an excellent way to participate in the stock market without compromising your passive income stream.
Long-term recurring revenue will drive Pool Corp's earnings higher
Lee Samaha (Pool Corp): The stock is a new addition to Warren Buffett's Berkshire Hathaway, but the reasons behind it appear to be very familiar. The company is the "largest worldwide distributor of pool-related outdoor living products." It commands a strong presence in an industry that generates a long-term stream of recurring revenue.
While spending on new pool construction is cyclical and driven by the interest rate cycle, it's only responsible for a mid-teens percentage of industry revenue. Moreover, it's important to note that while new pool construction and remodeling activity will be down significantly in 2024, the installed base of swimming pools is still increasing.
That's good news for Pool Corp because around 60% of sales come from non-discretionary maintenance spending on pools, with a further 24% from replacement and remodeling, which management describes as "somewhat discretionary."
The critical point is that most of its revenue tends to be non-discretionary and, therefore, recurring, protecting the downside from a slowdown in consumer spending, as is the case in 2024. Spending on new pool construction is likely to improve in a lower-rate environment. As such, management sees its revenue growing at a 6% to 9% annual rate over the long term with ongoing margin expansion. Consequently, earnings should grow at an impressive clip over the long term.
All told, Pool Corp is an attractive stock for Buffett followers to invest in, and I also think one of the company's significant suppliers, Pentair, is also an exciting stock for investors to look at.
