Dividend stocks are an important piece of any individual investor's portfolio. Not only do they provide passive income, which is an attractive feature, especially retirees, but they protect your portfolio when the market is volatile. And if you're a newbie growth investor who's just experiencing a downturn for the first time, you'll notice that while the market's tanking, many of the top, established dividend stocks are beating the market.
If you need ideas for great dividend stocks, Berkshire Hathaway is a great place to start (even though it doesn't pay a dividend itself). Warren Buffett loves dividend stocks, and the Berkshire Hathaway portfolio is chock-full of them. I recommend Bank of America (BAC 0.89%) and Ally Financial (ALLY 0.98%).
1. Bank of America: Buffett's favorite bank
Bank of America was Berkshire Hathaway's second-largest position before it sold off a portion during the past few months. It's now in third place, accounting for 10.1% of the total equity position.
Buffett loves stocks that are part of the American story, and as the second-largest bank in the U.S. by assets, Bank of America has a large role in the economy. It's also more consumer-facing than commercial, even though it offers both kinds of services, and people rely on its services to manage their money.
NYSE: BAC
Key Data Points
High interest rates are generally seen as a negative for banks because they lead to higher defaults, but there are some positive elements, too. Banks make money on the funds sitting in customer accounts, and they can make more money on loans when rates are higher, even though they pass along some of that increase to customers. The bank's net interest income increased from $13.9 million to $14.4 million year over year in the fourth quarter.
In 2024, Bank of America added 1.1 million checking accounts and has reported growth for 24 consecutive quarters. It added 4 million credit cards, and consumer investment assets increased 22%. In wealth management, it added 24,000 new relationships, and client balances increased 12% to $4.3 trillion. It's also making progress in its corporate units, and it's in the No. 3 in the industry in investment banking fees, which increased 31%.
It has plenty of cash to back its dividend, and it's performing well, providing confidence that it can continue to pay and raise the dividend for many years. The dividend yields 2.4% at the current price, and it's increased 420% duringthe past 10 years. BofA stock trades for less than $44 per share, and $500 will get you a nice number of shares to shield your portfolio.
2. Ally: The up-and-coming bank
Ally isn't significantly different from Bank of America or any other bank, but it does stand out in several ways that make it a great candidate for a top dividend stock. For one thing, the dividend yields 3.2%, or more than many similar banks.
Ally is also an all-digital bank, and it's the largest one in the U.S. It started out as the financing business of General Motors, but it was spun off as its own bank in 2014 and got its start in consumer banking only online. That gives it a leg up over banks with physical branches, as consumers continue to seek out digital options, and it doesn't have to invest in costly real estate. In its consumer banking division, it added 230,000 new customers in 2024, for a total of 3.3 million.
NYSE: ALLY
Key Data Points
Its roots are in auto lending, and it's still the top prime U.S. auto lender. It had 14.6 million auto loan applications last year, up from 13.8 million the year before, and it's raising its average FICO score to account for increasing defaults. It has experienced pressure this year with a rising default rate, and it's consolidating operations to become more efficient. It sold its credit card unit and plans to focus its resources on the auto loan division, the deposit business, and corporate finance.
Ally is the classic undervalued Buffett stock, and it trades at a discount to the typical bank stock at a price-to-book ratio of 1. It's only a small portion of the Berkshire Hathaway portfolio, but it could be an excellent dividend stock for the long-term investor. The shares trade at less than $38 a share, so $500 will get you a nice chunk of the stock.
