Warren Buffett’s Latest Dividend Pick: Why Macy’s Stands Out

Key Takeaways

• Berkshire Hathaway’s new CEO, Greg Abel, established a stake in the company this year.

• Its dividend yield exceeds that of the S&P 500.

• The shares trade at a deep discount relative to the broader market, offering considerable upside potential.

Berkshire Hathaway itself does not distribute dividends, but its legendary former CEO, Warren Buffett, has long favored acquiring shares in dividend‑paying companies.

His successor, Greg Abel, has likewise added a dividend‑paying stock to the portfolio this year, making it worth a closer look. For investors seeking both income and upside, Macy’s (NYSE: M) presents a compelling choice.

This represents a fresh equity holding for Berkshire in 2024; as of June 30, the conglomerate held 7.3 million shares worth approximately $173 million.

Berkshire’s interest in Macy’s underscores the retailer’s appeal, and several factors make it worthy of further scrutiny.

Image source: Getty Images.

Dividend Support

Macy’s increased its quarterly dividend by 5% this year, lifting the payout from $0.1824 to $0.1915 per share. The board has raised the dividend each year since 2022, after reinstating payouts in 2021 following a pandemic‑related suspension in 2020.

This year’s increase signals management’s confidence in sustaining the higher payout, though investors should still verify the dividend’s long‑term viability.

One useful gauge is the payout ratio—dividends expressed as a percentage of earnings. Macy’s ratio sits at a comfortable 29%, indicating ample coverage.

The stock also offers an above‑average yield; Macy’s shares return 3.4%, versus 1.1% for the S&P 500 (SNPINDEX: ^GSPC).

Growth Prospects

Over the twelve months ending September 8, Macy’s shares advanced 29.6%, outpacing the S&P 500’s 18.4% gain by 11.2 percentage points.

Given Macy’s ongoing turnaround, additional upside appears likely. The company’s “Bold New Chapter” initiative, launched a few years ago, aims to enhance the shopping experience, close underperforming stores, grow the luxury Bloomingdale’s and Bluemercury segments, and strengthen the core Macy’s brand.

Sales figures reflect this progress. Same‑store sales rose 2.8% in the most recent fiscal second quarter, with all divisions posting gains—Macy’s at 1.1%, Bloomingdale’s at 11.3%, and Bluemercury at 6.2%.

Importantly, gross margin (excluding tariff refunds) edged up from 41.4% to 41.5%.

Despite these encouraging results, Macy’s shares still look attractively priced. The stock trades at a price‑to‑earnings ratio of roughly 9, a small fraction of the S&P 500’s P/E of 26.

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