6.8.10

How Warren Buffett survives on a $1,923.09 a Week?

Warren Buffett speaking to a group of students...Image via Wikipedia
Everyone who is involved in investing may have heard of Warren Buffett, the self-made investor Billionaire and the third richest man in the world. However, what you may not know is that counting only his take-home pay, Warren Buffett (the Oracle of Omaha) is a pauper compared to his peers.



With a yearly salary of just $100K from Berkshire-Hathaway, the grandfatherly Buffett just barely finds himself among the top 30% of earners - a mere pittance for one of the world's richest individuals.

But as we all know, there is more to this story than meets the eye. After all, Warren is not exactly wondering where his next meal is coming from...
The difference, in this case, is in the dividends.

Dividend Stock Strategies

You see, aside from the paycheck he received from his "day job," Warren earned an estimated $42,583,971 in income last year from the dividends spun off from his own personal holdings.
Those dividend money machines accounted for 99.76% of his estimated 2009 income, keeping him flush with cheeseburgers and business jets.
And with the yields on the benchmark 10-year Treasury note hovering in the 3.8% range and the market struggling to rebound, Buffett's dividend portfolio will likely outperform in 2010, adding to his massive fortune.

True to form, he buys them, holds them, and watches them grow. Simple - but effective.
But that is not the only advantage to be had by building a portfolio like Warren's. The other benefits of a divided-based portfolio include:
  • Safety - If preserving your money is as important to you as it is to Buffett, dividend investments are preferable because of their low risk.
  • Diversification - If the balance of your portfolio tilts towards growth, dividend investments can help you diversify acting as buffer against unpredictable market swings.
  • Access - Dividend-paying stocks offer investors ready access to their income streams, unlike similar investments in 401(k)s and IRAs, which are retirement based and carry penalties for early withdraws.

Even in bear markets, dividend-paying stocks typically do well, especially if those companies have a strong history of increasing the dividend payout.
That's because investors win two ways when a company increases its dividend. First, the yield on your initial investment goes up with the dividend; second, and even better, the dividend increase often propels the share price higher.
That's an unbeatable combination in today's tough markets. And it's the reason that investors are so eager right now to gobble up companies with solid dividend yields.

Warren Buffett's Personal Portfolio
The latest filings from his personal portfolio showed that he had multi-million-dollar stakes in 10 companies as of the end of last year.
Per the SEC, they included investments in:

  • Wells Fargo (NYSE: WFC).............................. 14, 812,857 shares

  • Johnson & Johnson (NYSE: JNJ)......................4,973,200 shares

  • Procter & Gamble (NYSE: PG)..........................4,375,000 shares

  • Kraft Foods (NYSE: KFT)..................................8,000,000 shares

  • Wal-Mart (NYSE: WMT)....................................4,200,000 shares

  • US Bancorp (NYSE: USB)...................................8,365,000 shares

  • General Electric (NYSE: GE)..............................7,777,900 shares

  • United Parcel Service (NYSE: UPS).....................1,429,200 shares

  • Ingersoll-Rand (NYSE: IR) .....................................636,000 shares

  • Exxon Mobil (NYSE: XOM)...................................421,800 shares
Among them, they pay an average dividend yield of 2.3%, with Buffett concentrating 77% of his investments in the top five stocks. That plan allows Buffett to "get by" on the $1,923.08 found in his weekly paycheck.

Buffett is not concentrating entirely on dividend yields to make his investment as well. 
Firstly, He seeks for value - he scoops up companies shares when they are undervalued during bear markets.
Secondly, He makes sure these companies are there to stay and grow with their competitive strengths - companies like P&G and Kraft Foods are no-brainers.
Lastly, due to first and second steps by Warren Buffett, the companies which are doing good will keep compounding the dividend yield, churning out steadily increasing income periodically even as Warren Buffett is performing his favourite adage - 'buy n hold'.


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