Over the six decades of leading Berkshire Hathaway Inc. (NYSE: BRK.B), Warren Buffett has never paid a dividend, yet his affection for dividend stocks has never been concealed. In the second quarter of 2025, Buffett made significant purchases of 12 stocks, all of which pay dividends—a move that once again highlights his investment philosophy of “cash flow is king.”
Investment Logic: Balancing Defensiveness and Value
Although Berkshire itself does not pay dividends, Buffett has long generated stable cash flow for the company by investing in high-dividend assets. The 12 stocks purchased span multiple sectors, including energy, health insurance, construction materials, and advertising. Half of these were new additions to the portfolio, with UnitedHealth Group (UNH) being the largest purchase of the quarter with over 5 million shares bought. The stock, whose price had halved, was seen by Buffett as a “rare undervalued opportunity,” reflecting his consistent strategy of “being greedy when others are fearful.”
Besides UnitedHealth, new additions included security products manufacturer Allegion (NYSE: ALLE), real estate developers D.R. Horton (NYSE: DHI) and Lennar (Class A/B shares), outdoor advertising company Lamar Advertising, and steel producer Nucor. These industries exhibit strong cyclicality or essential demand characteristics, closely tied to expectations of economic recovery.
Dividend Quality: Balancing Yield and Sustainability
In terms of dividend yield, Lamar Advertising (4.95%) and Chevron (4.34%) ranked the highest. However, yield is not the only consideration. Dividend sustainability is equally critical, Lamar Advertising’s payout ratio is as high as 137.5%, posing sustainability risks.
Chevron has raised its dividend for 38 consecutive years, with a payout ratio of only 75.2%, combining high yield with stability. Additionally, valuation factors were taken into account. Heico’s forward price-to-earnings ratio of 59.5, along with Pool Corp. and Lamar’s ratios of 29.9 and 29.5, respectively, could pressure long-term returns from dividend income.
Top Picks for Income Investors: Chevron and UnitedHealth
Among the 12 stocks, Chevron(NYSE:CVX) and UnitedHealth offer the most compelling value for allocation. As an energy giant, Chevron provides a 4.34% dividend yield, with a 38-year record of consecutive dividend increases demonstrating its commitment. Its forward P/E ratio of 20 is within a reasonable range.
Although UnitedHealth faces short-term policy headwinds, its 2.9% dividend yield combined with a low payout ratio provides a margin of safety, and a strong recovery in fundamentals is anticipated.
These two stocks collectively embody Buffett’s core investment logic: investing in industry leaders during short-term difficulties, using high dividends as downside protection, and capitalizing on long-term recovery opportunities.
Underlying Strategy: Cash Flow Optimization and Defensive Allocation
Buffett’s concentrated purchase of dividend stocks implies three strategic intentions:
Countering Market Uncertainty: In a rising interest rate environment, high-dividend assets can act as “stabilizers” in volatile markets.
Reinvesting Cash Flow: Dividend income will be converted into Berkshire’s free cash flow, supporting future acquisitions or buybacks.
Sector Diversification: Covering multiple sectors such as energy, healthcare, and consumer goods to reduce single-industry risk.
Conclusion: The Long-Term Value of Dividend Strategy
Through investing in dividend stocks, Buffett has achieved “making assets work for him.” For income-oriented investors, Chevron and UnitedHealth represent the optimal choices from Buffett’s selections this quarter—offering both current income and long-term growth potential. In an environment of uncertain economic prospects, this strategy once again proves that true investment wisdom lies in balancing income and risk and realizing value over time.
