3 Warren Buffett Dividend Stocks to Buy

By Todd CampbellMarketsFool.com

Warren Buffett ownsApple Inc. (NASDAQ: AAPL), Delta Air Lines (NYSE: DAL), and Wells Fargo (NYSE: WFC)stock because they're great companies that he was able to buy at a fair price. But there's another reason why investors might want to follow in his footsteps and add these stocks to their portfolios: all three have a solid history of dividend increases.

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Warren Buffett said it was his lieutenants that were initially responsible for adding Apple to Berkshire Hathaway's (NYSE: BRK-A)(NYSE: BRK-B) portfolio, but given Apple has become Berkshire Hathaway's sixth biggest stock, it seems the Oracle of Omaha has also given Apple his blessing.

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Berkshire Hathaway bought Apple shares when they were on the down-and-out because existing iPhone users were holding off on upgrades. Since then, Apple's shares have climbed on optimism that sales would pick up in the wake of competitor stumbles and new product launches.

Last quarter, that optimism was rewarded with record iPhone, Mac, Apple Watch, and services sales. Record results in the company's services segment was especially good news because it's high-margin revenue that can help support profit and future dividend increases. Last quarter, services revenue grew 13% quarter-over-quarter and 18% year-over-year to $7.2 billion.The strong results produced operating cash flow of $27 billion last year, and as a result, the company returned nearly $15 billion to investors via share buybacks and dividend payments.

Thanks to a 10% dividend increase last April, the company's dividend per share is currently $0.57 per quarter, which is 21% higher than it was in 2014. If sales continue to grow, investors could get rewarded with another dividend increase soon, and ifDonald Trump makes good on promises to allow companies like Apple to repatriate cash held overseas, then the company could have even greater dividend flexibility.

Admittedly, Apple's 1.7% dividend yield isn't the biggest yield out there, but this is a top-tier company with a rock-solid balance sheet, and given the potential to consistently boost its dividend over time, I think it's a stock that's worthy of owning in income portfolios.

AAPL Dividend data by YCharts.

Flying high

Warren Buffett is making a 60 million share, $3 billion bet that Delta Air Lines' future is brighter than its past. His stake is particularlysignificant because it suggests Buffett believes there's been a fundamental change in an industry that he once labeled as a "terrible" industry for investors.

Perhaps Buffett's change of heart is due to an industry wide shift in how airlines approach their business. In the past, airlines increased the number of routes they offered and competed fiercely on price. Today, they focus on fewer routes and fuller flights, rather than price wars.

This approach has helped airlines deliver more consistent profit, and with the U.S. economy expanding, that could be good news for future dividend increases. Last year, Delta Air Lines' revenue passenger miles were up 1.7%, and with economists predicting GDP and personal income growth in 2017,there's reason to think that passenger miles will climb again this year.

If so, then Delta Air Lines may have plenty of financial flexibility to return more money to investors.In 2016, itsoperating cash flow was $7 billion and its net income was $4 billion, and that allowed the company to spend $3.1 billion on share buybacks and dividends. The company increased its quarterly dividend payment 50% last year, and at $0.203 per share, its dividend is significantly higher than the $0.063 per share it paid investors in 2014.

Rising rates, bigger profits

Wells Fargo is Berkshire Hathaway's second biggest position, and although Wells Fargo's shares tumbled last year on news that marketing incentives caused workers to create"fake" accounts, shares have recovered their losses and are trading near 52-week highs.

Wells Fargo's rebound has a lot to do with the Fed's increasingly hawkish approach to interest rates.

Over the past few years, the spread between bank lending rates and borrowing costs has been hamstrung by rock-bottom fed funds rates and government bond buying programs that have depressed Treasury yields.Recently, the Fed has been threatening higher rates to curb inflation risks, and in December, it bumped up rates by 25 basis points. Industry watchers think another 25 basis point increase could be coming soon.

If so, then it would be good news for Wells Fargo. The company's interest rate sensitivity forecast suggests itcould enjoy up to a 5% earnings tailwind over the next two years, if interest rates climb more quickly than it's modeling.

If rising rates boost profit, then it could helpWells Fargo convince regulators to OK a dividend increase. Currently, Wells Fargo is paying shareholders $0.38 per share per quarter dividend, up from $0.225 cents per share in 2012. The bank could also get additional wiggle room on its dividend depending on howregulatory reform in Washington pans out. Currently, Wells Fargo has to get a green light from regulators before returning money to investors, but that could conceivably change under Donald Trump.

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Todd Campbell owns shares of Apple.His clients may have positions in the companies mentioned.The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares). The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.