Want $3,000 in passive income? Invest $16,000 in These 3 Warren Buffett Dividend Stocks and Wait 5 Years

In times of volatility, investors looking to deploy cash can look for stocks trading at a discount, or if they want to avoid volatility altogether, they can look to stocks with strong dividend yields that over time will can result in stable passive income. Few people know more about dividend stocks than Warren Buffett. By his company Berkshire HathawayBuffett has invested in more than a few dividend-paying stocks that have helped Berkshire outperform over the years.

Three stocks that generate good dividend yields for Buffett are the telecommunications giant Verizon Communications (VZ 1.63% )major energy producer Chevron (CLC 1.69% )and the big bank American bank ( USB -0.63% ). Invest $6,000 in Verizon with a dividend yield of around 4.8%, $5,000 in Chevron with a dividend yield of around 3.25%, and $5,000 in US Bancorp with a dividend yield of about 3.4% would generate about $3,100 in passive income over five years. Not too shabby for the mailbox money. Let’s take a look at each of these three stocks.

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1. Verizon

Buffett bought Verizon in late 2020 amid the pandemic at a time when it was selling more than it was buying. Not only does Verizon offer a strong dividend yield, but it’s also a classic Buffett value play, trading at less than 10 times earnings. Verizon also appears to be having some momentum, coming off a strong quarter in which earnings and revenue beat expectations, and forecasts for this year also beat analysts’ forecasts.

Verizon is making good progress with its 5G wireless Internet initiative and as part of this, it appears to be taking the lead in exciting new business areas, such as Network as a Service (NaaS), which is a digital subscription that enables a user to synchronize all their electronic devices, from an iPhone to an autonomous vehicle. Verizon has now increased its dividend for 15 consecutive years, making it a very strong dividend stock.

2. Herringbone

Chevron is one of the best performing stocks in Berkshire’s portfolio and has risen more than 40% so far in 2022. The catalyst for this year has been Russia’s invasion of Ukraine, which significantly drives up oil prices. The United States and many other countries banning oil and gas imports from Russia due to the war, and Russia being one of the largest exporters of gas, this has made American energy companies very valuable . Chevron is currently trading at all-time highs.

The company is also in good financial shape and in the past has managed to increase its free cash flow even when the price of oil has been falling. Chevron also plans to significantly increase its share buybacks and recently raised its free cash flow projections through 2026. The company has increased its dividend every year for 36 consecutive years. Given its strong performance this year, it’s certainly fair for investors to wonder if a pullback is coming at some point, but it’s in very strong financial shape and is a great dividend-paying stock.

3. American Bancorp

The group is completed by US Bancorp, one of the largest banks in the United States with over $564 billion in assets. US Bancorp survived the massive bank sell-off by Buffett and Berkshire during the pandemic and appears to be Buffett’s regional US bank of choice. US Bancorp operates a premier commercial bank, which caters to small businesses as well as large corporations with its unique payment business, which sets it apart from its peers. In the coming years, US Bancorp plans to merge and further integrate its payment and commercial banking products.

Since 2010, US Bancorp has consistently generated strong annual returns on equity above 14%, which is a good indicator of the money the company has earned on shareholder capital. US Bancorp has been a consistent dividend payer and has also consistently increased its dividend since 2010. It is a bank that has consistently been among the top performers in the industry.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.