Collect Dividends Like Warren Buffett -- With a High-Yield Utility Stock He Can't Buy

Warren Buffett uses Berkshire Hathaway as his investment vehicle, with the conglomerate buying and selling stocks and entire companies. Investors can get ideas by examining Berkshire's portfolio of investments, both public and private. One big investment area for Buffett is utilities. You can easily invest in well-run utilities, too, and here's a particularly attractive option for doing that right now.

Black Hills is a Dividend King

What sets Black Hills (NYSE: BKH) apart from most of its peers is its impressive dividend history. The electric and natural gas utility has increased its dividend annually for 55 consecutive years. That makes Black Hills a Dividend King, which is a highly elite group of companies. A company doesn't achieve Dividend King status by accident; it requires a strong business model that is executed well in good times and bad. Black Hills is one of the few utilities to achieve this feat.

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Black Hills operates in parts of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming, providing energy to around 1.35 million customers. Notably, the company's customer growth is running at nearly 3 times the rate of the overall population growth in the United States. More customers mean more revenues and will likely lead to easier conversations with regulators around rate hikes and capital investment plans.

This utility is currently offering a generous 4.4% dividend yield. That is well above the 1.3% yield of the S&P 500 index and the 2.9% or so average for utilities. And Black Hills' yield is toward the high end of its yield range over the past decade. All in all, it looks like a bargain today.

BKH data by YCharts.

Jump on a deal that Buffett won't

Black Hills looks attractively priced and has a strong business, along with solid growth prospects. Currently, management is targeting earnings growth of between 4% and 6% a year, with dividends likely to trail higher at around the same rate. There is a lot to like here, but there's one small problem (pun intended).

Black Hills' market cap is a tiny $4.4 billion or so. The truth is, Warren Buffett could easily snatch it up within Berkshire Hathaway's $1.1 trillion-sized conglomerate. Only, nobody would notice. Black Hills just isn't large enough to move the needle on the top or bottom lines. On top of that, Berkshire Hathaway's utility operations don't significantly overlap with Black Hills' service regions. So, buying it likely wouldn't provide much business benefit, either.

Given the size and business issues, it is highly unlikely that Buffett is looking at this tiny Dividend King utility. But that doesn't mean you shouldn't. Of course, you need to go in with realistic expectations. Black Hills is a rather boring company, and it isn't going to be the type of stock you brag about owning at cocktail parties (like you might if you owned Berkshire Hathaway). Slow and steady earnings and dividend growth are the name of the game.

But that isn't a bad thing. Berkshire Hathaway doesn't pay dividends; instead, it chooses to use the cash flows generated by the companies it owns to reinvest in its business. You can essentially achieve the same result by reinvesting Black Hills' dividends. Or if you prefer, you can use the steady stream of dividend cash to pay for living expenses. Either way, it is worth noting that the regular dividend hikes have outpaced the historical rate of inflation growth, so the buying power of Black Hills' dividend has grown over time.

A solid, though boring, high-yield Dividend King

Just because Buffett buys a stock or invests in a sector doesn't mean you should, too. You need to make sure the investment decisions you make align with your portfolio and investment approach. However, there's no harm in taking some cues from a man whom Wall Street has dubbed the "Oracle of Omaha" because of his long history of investment success.

In this instance, his utility investments could easily lead you to Dividend King Black Hills. Buffett isn't likely to buy it, but this tiny high-yield utility might fit perfectly into your dividend portfolio.

Should you invest $1,000 in Black Hills right now?

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Reuben Gregg Brewer has positions in Black Hills. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.