Warren Buffett Just Bought This Beaten-Down High-Yield Dividend Stock. Should You?

Warren Buffett continues to keep most of his powder dry. In the fourth quarter of 2023, he only bought three stocks, all of which were additions to existing Berkshire Hathaway positions.

When Buffett is reluctant to invest, it’s worth paying close attention to the stocks that he is willing to buy. One of his recent purchases, Chevron (NYSE: CVX), is a beaten-down high-yield dividend stock. Why is Buffett loading up on Chevron — and should you follow in his footsteps?

Buffett’s big bet on Big Oil

Chevron ranks as Buffett’s fifth-largest position, making up 5.1% of Berkshire’s overall portfolio. The legendary investor first initiated a position in the oil and gas giant in the fourth quarter of 2020. At the time, Chevron’s shares were down significantly with the lingering impact of the COVID-19 pandemic.

Buffett seemed to have adopted a less positive take on Chevron beginning in the fourth quarter of 2022, selling nearly 2.4 million shares. During the first three quarters of last year, he reduced Berkshire’s stake in the stock by close to 52.8 million shares.

However, the Oracle of Omaha is again making a big bet on Big Oil. He scooped up another 15.8 million shares of Chevron in Q4. Buffett also continued to aggressively buy shares of Occidental Petroleum, which is now Berkshire’s sixth-biggest holding.

What makes Chevron attractive?

Why is Buffett buying Chevron stock again? I suspect there are several key reasons.

Valuation stands at the top of the list, in my view. Chevron’s shares plunged in Q4 after the company announced plans to acquire Hess for $53 billion. As a result of this sell-off, though, the stock trades at a forward price-to-earnings ratio of only 11.6x.

Some investors are skeptical about the Hess deal. However, the negative reaction to the acquisition appears to be overdone. The consensus on Wall Street seems to reflect this: Of the 24 analysts surveyed by LSEG in February, 16 rate Chevron as a buy or strong buy.

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