Warren buffett doubles his money with these stocks every 2 to 5 years

Warren Buffett

Warren buffett, CEO of berkshire hathaway (WKN: A0YJQ2), has successfully managed for himself and his investors throughout his career. Buffett's net worth recently swelled to $80.5 billion. This figure does not take into account the $37 billion it has donated to various charities over the past 14 years.

The oracle of omaha has also created a value of $400 billion for shareholders. Over the last 55 years, the benchmark S&P 500 index, including dividends paid, has returned 19.784%, while berkshire hathaway shares rose 2.744.062% increase.

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Dividends have played an important role in buffett's long-term success

Warren buffett has always been excellent at identifying companies with clear and sustainable competitive advantages, and he has benefited from holding those companies for long periods of time. He's also a big fan of value stocks.

But there's one factor in buffett's success that doesn't get nearly the attention it deserves: his affinity for dividend stocks. The vast majority of companies that pay dividends are regularly profitable and have proven business models.

Stocks that pay dividends historically outperform peers that don't by a wide margin. In 2013, bank of america/merrill lynch released a report comparing the average annual return of stocks that initiated and increased their payouts between 1972 and 2012 to the average annual return of stocks that do not pay dividends. The result was clear: dividend-paying stocks saw an average annual increase of 9.5%, while non-payers saw an average increase of only 1.6% per year over that four-decade period.

Buffett, however, has an added advantage when it comes to dividend stocks. Because the oracle of omaha invests for the very long term, its initial cost basis can be quite low for stocks held for the long term. If quality company payouts continue to rise, the time it takes buffett to double his money based on berkshire's initial cost base shrinks.

For each of the following three stocks, buffett can double his original bet within two to five years.

The coca-cola company

Perhaps it's no surprise that berkshire hathaway's longest-held holding also happens to be one of its most robust money-makers.

Beverage giant the coca-cola company (WKN: 850663) has been a staple of buffett's portfolio since 1988, with berkshire having an initial cost basis of $3.245 per share. Coca-cola pays dividends of $1.64 per share, so berkshire hathaway's return on initial cost is a whopping 50.5 percent. Put another way, berkshire doubles its initial investment every two years in dividends alone. To this end, it is important to note that coca-cola has increased their base dividend for 58 consecutive years.

If you're wondering why coca-cola has been such a successful investment, look at the company's geographic reach. With the exception of north korea and cuba it is in all countries of the world active. It has a solid 20% share of the cold beverage market in developed countries, but has ample opportunity to expand its 10% market share in faster-growing emerging markets.

Another reason coca-cola is such a long-term star is its outstanding ability to connect with consumers. Coca-cola is one of the most recognized brands in the world, and the company has done an excellent job of marketing to new and existing consumers. By incorporating its products into the holidays and using a variety of social media and celebrity endorsers, the company has never had trouble being a brand that takes center stage.

Moody's

Despite paying out only a 0.76% yield recently, moody's (WKN: 915246) – the credit rating, risk assessment, and data analytics company – is an absolute money machine for warren buffett's company. That's because berkshire hathaway's initial cost basis is only $10.05 per share (moody's closed last week at nearly $294). With the company's annual dividend payout at $2.24, berkshire hathaway's annual return based on original cost is 22.3 percent. This means berkshire doubles its initial investment every 4.5 years, not counting reinvestments.

Moody's has had a lot to contend with in the wake of volatility stemming from the coronavirus pandemic. Given the fact that companies need to protect their liquidity in these complex times, they have been borrowing heavily. At the same time, borrowing rates have been well below their historical average for more than a decade, so conditions were ripe for businesses to look for deals on loans. These factors are keeping the company's relevant investment services segment under steam.

In addition, we should also not overlook moody's analytics. The analytics segment is arguably the company's most consistent growth engine. Its solutions help companies forecast and manage risk and comply with regulations in their respective industries.

Aside from buffett's purchase of apple stock and acquisition of GEICO in 1996, moody's may represent the oracle of omaha's most significant investment.

American express

A third long-term investment that regularly doubles warren buffett's bet is credit card company american express (WKN: 850226).

Amex has been an integral part of berkshire hathaway's portfolio since 1993, with an initial cost basis of just $8.49 per share. Based on the $1.72 per share american express pays out, berkshire's return on cost is an encouraging 20.3 percent. Even without reinvestment, it will take buffett just under five years to recoup his investment through amex's dividend payouts.

There are two aspects to the merits of american express' business model. First, the company targets affluent consumers. The wealthy are less likely to cut spending or not pay bills when economic uncertainty arises. This fact has always helped amex cope well with minor economic contractions.

Second, american express is taking a two-pronged approach: not only is it a payment processor for merchants, but it also lends to consumers and businesses. This model exposes amex to rising loan arrears during recessions. Fortunately, recessions are historically much shorter than periods of economic growth. Amex is poised to benefit in the long run from an expanding U.S. And global economy.

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This article was written in english by sean williams and published on 06.10.2020 on fool.Com published. It has been translated so that our german readers can participate in the discussion. Sean williams owns shares of bank of america. The motley fool owns shares of and recommends apple, berkshire hathaway (B shares) and moody's.