2 top passive income ideas from Warren Buffett’s portfolio

“If you don’t find a way to make money while you sleep, you’ll work yourself to death“. Billionaire investor Warren Buffett’s words will appeal to all investors like me who want to create multiple sources of passive income that can take care of living expenses.

But where should I look for dividend stocks that can provide other income?

Again, I look to Buffett for inspiration. Let’s look at two stocks owned by their parent company, Berkshire Hathaway.

Coca Cola

A longstanding constituent of Berkshire’s portfolio, the beverage giant Coca Cola (NYSE:KO) offers a dividend yield of just under 3%.

Although there is a risk that passive income investments may be cut, or suspended by the company, but Coca-Cola is reliable. It has an uninterrupted 61-year dividend growth streak.

Brand recognition and a simple business model are qualities that have served this global giant for decades. Today, the Coca-Cola brand portfolio includes more than 500 labels sold in more than 200 countries around the world.

That said, there is no room for complacency and companies continue to increase their marketing spend. This has not broken the foundation. In its fourth quarter results, Coca-Cola revealed a 15% increase in organic profit to $10.1bn and underlying operating income rose 21% to $2.1bn.

A price-to-earnings ratio of 28.3 seems a little high, and there is a risk of further growth in the Coca-Cola stock price can be subdued. However, I already own shares in the company and I will consider increasing my position if I like what I see in the company’s Q1 FY23 results due on April 24.

Diageo

The second passive income idea from Buffett’s stock market position is another beverage titan, but of the alcoholic variety. Diageo (LSE:DGE) is just that FTSE 100 Billionaire savings have.

This company is another Dividend Aristocrat. The stock currently yields 2.1%.

of Guinness for Tanqueray gin, Diageo’s brand portfolio is packed full of familiar names. And business is booming. In its interim six-month results for FY23, the company reported an 18.4% increase in net sales to £9.4bn, as well as a 15.2% increase in operating profit to £3.2bn.

Sales growth was particularly strong in the company’s scotch and tequila product categories. Diageo focused on its premium brands in particular, which made up a large part of its revenue expansion in the first half of the financial year.

The strong pricing power associated with Diageo’s premium products is an attractive feature that helps support the company’s margins in an inflationary environment. Plus the new £0.5bn share buyback that has been undertaken should continue to add value to shareholders.

One of the main risks facing the company is the 10% increase in alcohol duty contained in the fine print of chancellor Jeremy Hunt’s budget. This could be a sign of Diageo’s share price. Indeed, Nuno Teles, Managing Director of Diageo GB, described the move as “punitive tax increases and inflation“.

However, strong finances and a stronger focus on quality should help Diageo overcome any challenges, in my view. If I had the money, I would invest in dividend stocks today.