2 Warren Buffett shares to buy with dividend yields above 4%

Warren Buffett is not a dividend investor. At Berkshire Hathaway CEOs prefer companies that retain earnings and reinvest them internally.

Despite this, there are a number of stocks in Berkshire Hathaway’s stock portfolio that generate excellent dividends. And I think that both shares are good to buy at today’s prices.

Kraft Heinz

Kraft Heinz (NYSE: KHC ) is the seventh largest holding in Berkshire’s portfolio. At current prices, the dividend yield is just over 4%

The main competitive advantage of the company is the strength of the brand. This allows businesses to maintain stronger operating margins.

Since 2018, Kraft Heinz has consistently maintained an operating margin of just above 20%. This compares favorably with Unilever (18%) and Kellogg Company (18%).

In my mind, the biggest risk with these stocks is that consumers switch to newer, fresher alternatives. There was a trend towards this before the start of the pandemic.

It is also worth noting that the company has a patchy dividend record, which remains at $1.60 per share since it was cut in 2019. But I think there is room for optimism here.

At the time, Buffett said improving the balance sheet should be Kraft Heinz’s priority. Since then, long-term debt has fallen by 25%, leaving the company in better financial shape.

As a result, I expect better shareholder returns in the future, either through higher dividends or share buybacks. And the current 4% dividend while I wait to put Kraft Heinz stock on my buy list.

Citigroup

In some ways, Citigroup (NYSE: C) is similar to Kraft Heinz, although the business operates in a very different sector. The company is going through a turnaround that I think will leave them in a better place.

At current prices, the stock yields a dividend of above 4%. And (like Kraft Heinz) the dividend has been at that level since 2019.

Citigroup is currently undergoing a restructuring process. It sold some of its international consumer operations to leave a global commercial bank and a US retail bank.

Over time, this should make the company more efficient and allow it to earn a higher return on capital. But restructuring stories are always risky and this one is no exception.

The biggest risk comes from the cost. Restructuring will incur huge costs and maintaining the company’s global business may be costly.

Despite this, I share that it is a bargain. The current price of the entire company is about $97bn, but the value of the company’s assets after deducting its liabilities is about twice that.

That means Citigroup shares trade at a price-to-book (P/B) ratio of around 0.5, which is lower than peers. Bank of America trades at a P/B ratio of 1.2 and JP Morgan trades at (1.6).

It should also be noted that Citigroup has been buying back shares since 2019, reducing the outstanding amount by 12%.

This makes increasing dividends more affordable for the company. Paying $2.04 per share is lower with 1.99 billion shares instead of 2.27 billion.

I see Citigroup as a business with significant potential with a good current dividend. The stock is the 14th largest holding in Berkshire’s portfolio and I also buy it.