Buffett's Berkshire Hathaway has material investment in finance, midstream, and utility businesses.
Investors can take Buffett's cue and examine those sectors for investment opportunities.
While Buffett doesn't own them, Enbridge, Toronto-Dominion Bank, and Black Hills might fit the bill.
Wall Street hangs on every word spoken and investment decision made by Warren Buffett, the CEO of Berkshire Hathaway. Given the massive outperformance of Buffett's investment vehicle over time, that makes complete sense.
If you are looking for some investment advice from the Oracle of Omaha, here are three high-yield stocks for you to consider right now. While Buffett doesn't own these stocks, they fit nicely within some of his favorite themes.
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1. Buffett is invested in the most reliable part of the energy sector
There are several types of businesses in Berkshire Hathaway that stand out because of their massive representation in his portfolio. One of those is energy, in which the company has a large midstream footprint. Buffett does own some energy stocks, like Occidental Petroleum and Chevron, but these companies tend to have more volatile businesses because they are involved in oil production. The midstream segment largely makes use of a toll taker model, so revenue and earnings are more consistent over time.
Canadian midstream giant Enbridge(NYSE: ENB) is a way for investors to buy into the midstream. It currently offers a lofty 5.7% dividend yield backed by 30 annual dividend increases (in Canadian dollars). The company has clearly rewarded investors well for owning the stock over time, noting that future dividend hikes are backed by a roughly $15 billion capital spending plan that lasts through 2029.
Enbridge isn't an exciting company, but that's the point: It's a slow and reliable tortoise that has a big yield.
2. Buffett has a huge investment in the utility space
Within Berkshire Hathaway's energy business is another sector that's worth examining, utilities. These are regulated businesses that have monopolies in the regions they serve, which tends to lead to slow, steady growth over time. The upside is limited because utilities have to get rates and capital spending plans approved by the government. But the regulated growth in the sector also tends to be resilient to economic and market downturns, so utilities are a good choice for more conservative investors.
Black Hills(NYSE: BKH) and its 4.4% yield is a good utility option to consider. Although this is a relatively small utility with a market capitalization of just $4 billion or so, it is one of the few companies in the sector to have achieved Dividend King status (it has 55 annual dividend increases under its belt). And it looks like there are more dividend hikes to come, too, given that the company's customer base is growing around three times the rate of the broader U.S. population. That should help ease the way for rate hikes and capital investment plans for years to come.
3. Buffett bought an out-of-favor bank. You might want to, too.
One of Buffett's big wins in recent years was stepping in to help Bank of America survive the Great Recession. Effectively, he was investing in a turnaround situation, taking a position in a large financial institution with a great history and still-strong business. You probably don't want to buy Bank of America, since the turnaround has already played out. But you might consider buying Toronto-Dominion Bank(NYSE: TD) and its roughly 4.8% yield.
TD Bank, as it is more commonly known, is one of the largest banks in Canada. Canadian banking regulations are very strict, effectively giving the largest players entrenched industry positions. So TD Bank's core is extremely strong. The problem it has today, and why the shares are down around 25% from their 2022 peak, is the bank's U.S. division. This segment of the business is under an asset cap because it was used to launder money.
TD Bank won't be allowed to grow its U.S. business until regulators are confident the money laundering issue is in the past. That could take a few years, limiting TD Bank's overall growth prospects. While not good, the problems are already being addressed, and the issue is very likely to be temporary. If you think in decades, TD Bank is a fairly low risk -- and high yield -- turnaround opportunity.
You don't need to do exactly what Buffett does
Nobody can invest exactly like Warren Buffett. What's more important is to learn from what he does and says so you can fine-tune your own investment approach. On that score, his direct investments in the midstream and utility space suggest that you might want to consider high-yielders Enbridge and Black Hills. And his investment in Bank of America when the financial giant was down and out hints that TD Bank might be worth your attention today.
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Bank of America is an advertising partner of Motley Fool Money. Reuben Gregg Brewer has positions in Black Hills, Enbridge, and Toronto-Dominion Bank. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, Chevron, and Enbridge. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
