Value Alert: 2 Dividend-Growth Stocks Warren Buffett Might Be Interested in

Gildan Activewear Inc. (TSX:GIL)(NYSE:GIL) and one other Canadian stock would have Warren Buffett licking his chops!

| More on:
close-up photo of investor Warren Buffett

Image source: The Motley Fool

I’ve always wondered what Warren Buffett would have invested in had he been born, raised, and had Berkshire Hathaway domiciled in Canada. While he’d still probably invest a big chunk of his money south of the border, I’d bet that he’d be more than willing to put a majority of his cash in quality Canadian companies that have the traits he desires most.

Wonderful businesses at fair prices are what Buffett likes best. The easier the business is to understand, the better; strong earnings growth is a must; and a wide moat is an essential component if a firm is to sustain its durable competitive advantage. There is no shortage of companies like this on the TSX index. And although you’ve got to do some digging through the energy and materials names to get to the gems, I think there’s a tremendous value proposition for investors like Buffett on this side of the border.

As the Canadian dollar continues to tumble, we may see Buffett look to Canada for investment options. Here are three that I think would be on his watchlist.

Gildan Activewear (TSX:GIL)(NYSE:GIL)

Fruit of the Loom is one of Buffett’s favourite Berkshire-held businesses. The company specializes in bare essential articles of clothing. A Canadian counterpart of the firm would likely be Gildan, a manufacturer of blank activewear like t-shirts, underwear, fleeces, socks, and the like.

Sure, basic articles of clothing aren’t as “moaty” as top-branded merchandise (anybody can sell blank tees, after all!). What sets Gildan apart from the competition is its ability to drive down costs like it’s nobody else’s business. The firm is a smooth operator, and as the firm pursues various growth initiatives, I see meaningful growth in operating cash flow alongside a solid foundation that could better allow Gildan to weather the next economic downturn.

Gildan isn’t just technically sound at the time of writing (shares are breaking out in a big way), but it’s also fundamentally sound. The stock has a conservative 1.42% dividend yield, which, while small on the surface, actually has room to run over the next few years.

Leon’s Furniture (TSX:LNF)

If you have a look at Berkshire’s book of investments, you’ll see that Buffett has a liking for furniture companies. Given Buffett’s expertise in the area, Leon’s Furniture may be a nice complementary addition to his portfolio given today’s severely depressed valuations.

The stock recently fell off a cliff and now trades at 11.6 times trailing earnings, 1.4 times book, and 0.6 times sales. That’s pretty darn cheap and when you consider the bountiful 3.52% dividend yield (with a fairly conservative payout ratio), the healthy free cash flow stream, and the relatively healthy balance sheet, I’d say the company is a prime target for a scoop-up if ever Berkshire was looking for a relatively low-risk Canadian holding.

Fellow Fool Brian Pacampara named Leon’s as one of his “super-value” stocks, touting the wider margin of safety, stable state of the industry, and “general outperformance” over prolonged periods of time as his primary reasons for recommending the stock. I think Pacampara is right on the money. The stock is dirt cheap, and if Buffett doesn’t take notice of the opportunity to pay a nickel to get a dime, Canadian Fools most definitely should!

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of Berkshire Hathaway (B shares).

More on Dividend Stocks

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution for Long-Term Gains

Whether it's infrastructure, real estate or tech, these three stocks offer a promising addition to your TFSA.

Read more »

coins jump into piggy bank
Dividend Stocks

Better Dividend Stock: Canadian Tire vs. CT REIT? 

Both Canadian Tire and CT REIT are good dividend stocks. However, which is a better investment depends on your financial…

Read more »

Dam of hydroelectric power plant in Canadian Rockies
Dividend Stocks

3 Low-Volatility TSX Stocks for Smoother Returns

Find stability in an era of tariff-induced uncertainty with Hydro One and two other low-volatility Canadian stocks

Read more »

Senior uses a laptop computer
Dividend Stocks

Why Canadian Dividend Stocks Are Still a Smart Buy in 2025

Here are some tax-related reasons why investors should continue to buy Canadian dividend stocks.

Read more »

monthly desk calendar
Dividend Stocks

3 Monthly Dividend Stocks to Buy and Hold Forever

These three dividend stocks offer monthly income and so much more for investors seeking growth in their portfolio.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

3 Canadian Stocks to Consider Adding to Your TFSA in 2025

Canadian dividend stocks like Altagas are a prime candidate for your TFSA due to their attractive valuations and dividend yields.

Read more »

lab worker inspects test tubes
Dividend Stocks

Better Materials Stock: Nutrien vs Methanex?

Sure, Nutrien stock seems like a strong option. But this other one might just have the edge on it.

Read more »

stock research, analyze data
Dividend Stocks

A Dividend Giant I’d Buy Over AQN Stock Right Now

While AQN continues to wrestle with multiple headwinds in 2025, another TSX dividend stock with a tasty yield is beating…

Read more »