Berkshire's Contrarian Dividend Plays: Why Chevron & Kraft Heinz Offer Asymmetric Value in a Skeptical Market

The market's short-term focus on oil price volatility and stagnant consumer goods sales has pushed Warren Buffett's favorite dividend machines—Chevron (CVX) and The Kraft Heinz Company (KHC)—into undervalued territory. For contrarian investors, this skepticism presents an asymmetric opportunity: a chance to buy into companies with fortress-like balance sheets, robust cash flows, and dividend yields that the market is underpricing. Let's break down why these two Berkshire Hathaway holdings are compelling buys now.

Chevron: A Dividend Champion in an Oil Slump

Chevron's 2024 financials reveal a company that's thriving even as oil prices stumble. Despite a 30% drop in Q1 2025 net income to $3.5 billion (due to lower crude prices), Chevron raised its dividend by 5% to $1.71 per share—a clear signal of financial strength. The stock's 5.3% dividend yield is nearly double the S&P 500 average, and its payout ratio of ~65% remains comfortably covered by free cash flow.

Even as free cash flow dipped to $15.0 billion in 2024 (from $19.8 billion in 2023), the company still returned a record $27.0 billion to shareholders via buybacks and dividends. This cash discipline is underappreciated by a market fixated on short-term oil prices.

Why Buy Now?
- EV/EBITDA of 5.8x (vs. industry median of 6.3x) suggests the stock is undervalued.
- Chevron's $7.7 billion in asset sales in 2024 and cost-cutting targets ($2–3 billion by 2026) position it to weather oil volatility.
- The market's obsession with near-term earnings misses the long-term value of its 3.35 million barrels per day production and projects like the Anchor deepwater field.

Kraft Heinz: A Value Trap? Or A Dividend Bargain?

Kraft Heinz's 6.0% dividend yield is a siren song for income investors, but skeptics argue its sales decline (6.4% in Q1 2025) and debt-laden balance sheet make it a “value trap.” Yet dig deeper, and the picture brightens:

• Free cash flow of $482 million in Q1 and $1.7 billion remaining in buybacks highlight management's shareholder focus.
• The payout ratio of 73% is well-covered by earnings, and the stock trades at a P/E of 13x—a 43% discount to its 10-year average.

Why Buy Now?
- The company's $20.9 billion in debt is manageable given its stable cash flows, and it's repositioning to focus on core brands like Oscar Mayer and Heinz ketchup.
- A 5.99% dividend yield with a 24.2% fair price midpoint (per GuruFocus) suggests upside of 16% even if estimates are conservative.
- The market's focus on macroeconomic headwinds (inflation, tariffs) ignores the $4.0 billion in annual cash flow it generates, which fuels both dividends and strategic shifts.

The Contrarian Case: Why Risk Is Mispriced

Both stocks face headwinds, but their asymmetric risk-reward profiles are undeniable:
- Chevron: Oil prices could fall further, but the stock's EV/EBITDA is already pricing in a worst-case scenario. A rebound to $80/barrel (vs. current $70s) would unlock massive upside.
- Kraft Heinz: Sales may remain stagnant, but the dividend is a guaranteed return of 6%—a floor that limits downside.

Final Call: Buy the Dip, Hold the Fort

The market's myopic focus on quarterly noise ignores the reality: Chevron and Kraft Heinz are cash cows with Buffett's stamp of approval. Chevron's 5% dividend hike and $27B shareholder returns in 2024 prove its financial resilience, while Kraft's 6% yield offers income investors a rare chance to collect while waiting for strategic repositioning to pay off.

Action Items:
1. Buy Chevron at $137/share (EV/EBITDA of 5.8x) for a 5.3% yield and exposure to energy's cyclical rebound.
2. Buy Kraft Heinz at $26/share for a 6% yield and a 13x P/E—far below its peers.

The skeptics are right to worry about oil prices and snack sales, but they're wrong to ignore the cash flows, dividends, and valuation multiples that make these stocks a steal at current levels. This is contrarian value investing at its finest: buying when fear is high, and fundamentals are underpriced.

Data as of May 2025. Past performance ≠ future results. Consult a financial advisor before investing.