This Buffett-Backed Dividend Stock Stands Above the Rest

Key Points

• Berkshire Hathaway has a 26.9% stake in Occidental Petroleum.

• Occidental is one of the biggest oil and gas producers in the U.S.

• The energy company has been growing its dividend since 2019.

• 10 stocks we like better than Occidental Petroleum ›

Warren Buffett built his reputation -- and Berkshire Hathaway's success -- on dividend stocks and income investing. The legendary CEO, who's marked 60 years at the helm, directs a massive investing portfolio that brings in hundreds of millions of dollars in dividends.

Now 95, Buffett is still making moves, adding and subtracting to Berkshire's portfolio regularly. He believes in buying shares in quality companies that have great management, a leading position in their industries, and reward their shareholders.

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While there are dozens of companies in Berkshire's portfolio today, as well as some blue-chip names, Occidental Petroleum (NYSE: OXY) stands out from the rest. Berkshire is still buying shares, and even has regulatory approval to take as much as a 50% stake. And to top it off, Occidental has a solid 2.1% dividend yield, making it a great stock for income investors.

Image source: Getty Images.

A closer look at Occidental

Occidental is one of the biggest gas and oil producers in the U.S., with assets in the Denver-Julesberg and Permian basins. Occidental also operates offshore in the Gulf of Mexico, in North Africa, and the Middle East.

As an integrated energy company, Occidental operates in several lanes -- upstream energy production, midstream pipelines, and downstream chemicals and refining. The company isn't nearly as big as some of the other major oil companies, as its annual income is dwarfed by ExxonMobil and Chevron, but its profit margin is competitive with both of its bigger rivals.

Simply put -- there's plenty of money to be made with Occidental. You don't have to own the biggest company to make the biggest profit.

OXY Profit Margin data by YCharts

It's no secret that oil companies aren't having the best year. Not only is it an expensive process to extract and process oil and gas, but oil prices have been falling. The price of a barrel of oil topped $110 as recently as 2022, but today is trading closer to $65. What's more, analysts are expecting oil to fall below $60 before the end of the year as OPEC states begins to reverse their production cuts.

That eats directly into the bottom line of Occidental and other oil companies. The company reported net income of $288 million and $0.26 per share in the second quarter, down from $992 million and $1.03 per share a year ago.

While Occidental produced 604 million barrels of oil in the quarter, up from 553 million a year ago, the price of $63.76 per barrel fell 9% from a year ago. Total revenue of oil and gas for the quarter was $934 million, down from $1.63 billion in the second quarter of 2024.

Why does Occidental stand out from other Buffett stocks?

Buffett's interest in Occidental goes back to 2019, when Berkshire bought $10 billion in preferred stock to help finance its takeover of Anadarko Petroleum. That was an interesting bet, as Occidental was going head-to-head with Chevron -- another Berkshire investment -- for control of Anadarko. On the downside, Occidental was forced to cut its dividend to finance that deal, but the dividend is growing once again.

Berkshire started acquiring shares, but made a bigger move in 2022 after reading a transcript of the company's earnings call. "I read every word, and said this is exactly what I would be doing. She's (CEO Vicki Hollub) running the company the right way," Buffett told CNBC.

The conglomerate now owns 264.9 million shares of Occidental stock, which is a 26.9% stake in the company. Berkshire got regulatory approval in 2022 to acquire as much as 50% of the company, but Buffett says that's not in his plan.

Source: Valuesider.com

The takeaway

Occidental is a classic Buffett stock. He trusts the management, it has a strong position in the energy sector, and provides reliable income. While it's true that Occidental stock is down 7% so far this year, that doesn't affect the long-term investment narrative. Buffett and Berkshire are continuing to bet big on Occidental stock, enjoying its growing dividend and solid management approach.

For long-term investors looking for a income stock, it's a compelling argument.

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Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.