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How I would follow Warren Buffett to earn passive income

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Warren Buffett CEO Berkshire Hathaway Oracle of Omaha

Warren Buffett is not an income investor, but he earns billions in passive income every year. But how does he do it? How did Oracle of Omaha manage to build a passive income portfolio without focusing on generating income?

The answer to this question is relatively simple and quite complicated. It has always focused on buying companies that produce large amounts of revenue with substantial profit margins. It also looks for companies that have paid investors a lot of money in the past. That doesn’t necessarily mean you’re looking for high-dividend stocks.

Instead, Buffett looks for companies that return a high percentage of their cash flow to investors. That may be a sign that the management team is steadily increasing their company’s dividend.

Warren Buffett and Dividend Investing

One of the most prominent examples of this strategy is Oracle’s investment in Coke. When he bought that investment in the late 1980s, the stock offered a dividend yield of about 3%.

Today, the stock pays a dividend equal to 50% of your original investment. Plus, there was capital appreciation along the way.

I try to take this approach when building my own portfolio. Instead of looking for the best-performing stocks on the market, I look for companies that have the potential to steadily increase their dividends over the next five, 10, or even 20 years.

Passive Income Purchases

Some companies seem to me to have these qualities. Two companies in particular are the beverage giant Diageo and the sales group Bunzl.

Both companies currently yield less than 3%, but have excellent growth records. It seems that this trend will continue in the future. Diageo expects steady earnings growth in the coming years as the company expands its market share and presence in the premium beverage market.

Bunzl is planning a series of other acquisitions to drive revenue growth. As these companies invest in growth, I think they will also be able to return more money to investors in the form of dividends. Along the way, they could face challenges such as: B. the crisis in the supply chain and higher costs due to inflation. These challenges could hamper growth. Still, today I would buy both stocks for my portfolio due to their potential to generate income.

Although Warren Buffett doesn’t own high-profile UK stocks, I think I can earn passive income from UK stocks by following his approach. Another strategy would be to buy some of his assets in the US for my portfolio. This is something I will also consider in my quest for income.

By focusing on high-quality companies that have a proven track record of returning investors a lot of money, I believe I can generate passive income from my portfolio for life.

The article How I would follow Warren Buffett to generate passive income first appeared in The Motley Fool Germany.

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This article was written by Rupert Hargreaves and was published on Fool.com on 3/6/2022. It has been translated so that our German readers can join the discussion.

The Motley Fool UK recommended Bunzl and Diageo. Opinions about companies mentioned in this article are those of the author and therefore may differ from the official recommendations we provide on our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that by consider a variety of ideas, we become better investors.

Motley Fool Germany 2022

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