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One FTSE 250 dividend stock I think Warren Buffett would buy today

Roland Head
close-up photo of investor Warren Buffett

What should you be buying in this market crash? I reckon one useful tip is to consider the kinds of companies investing legend Warren Buffett has been known to buy when prices are attractive.

The US billionaire is known for his patience and entered 2020 with a $120bn+ cash pile. We don’t yet know if he’ll make any big buys during the current slump. But I reckon the FTSE 250 stock I’m going to look at today would tempt Mr Buffett if he ventured over this side of the pond.

Simple and familiar

Warren Buffett is known to like convenience food. His holding company Berkshire Hathaway owns US fast food chain Dairy Queen and is the largest shareholder in both Coca-Cola and Kraft Heinz. Mr Buffett is said to be a regular customer of all three companies.

All of this makes me think that if he was in the UK, the Oracle of Omaha would be keen to take a look at Greggs (LSE: GRG). This UK high street chain satisfies all of Buffett’s requirements, in my view.

Simple and essential

Greggs is really a pretty simple business. The company makes and sells a range of takeaway food and drink. Despite recent healthy innovations, the core product range is built around reliable favourites such as sausage rolls and pasties.

You don’t have to look hard to find a Greggs, as its stores are always located in areas with strong footfall. This includes high streets plus workplace and travel locations. The store estate is constantly evolving to ensure that it stays focused and relevant.

Although the coronavirus seems likely to hit sales over the coming months, beyond that I’m pretty certain Greggs will bounce back strongly.

Strong management

The company is also very well managed, in my view. Boss Roger Whiteside has played a leading role in developing the UK’s food-to-go sector and appears to have built an excellent team at Greggs.

He’s gradually evolved Greggs’ food offering to cover more parts of the day and to broaden its appeal. The vegan sausage roll was a high-profile success. But did you know that Greggs is now the UK’s third-largest takeaway coffee retailer?

Mr Whiteside’s success at Greggs marks him out as one of the best CEOs in the FTSE 250, in my opinion.

The right price to buy?

Last week’s market crash left the Greggs share price hovering around 1,700p — roughly the same as one year ago. That’s not a huge crash, in the scheme of things. But this reflects the high quality character of the business, in my view.

In recent years, this group has reported very low debt usage and strong cash generation. Returns on capital employed are also high, averaging about 20%.

In my view, Greggs’ financial performance would look very appealing to Mr Buffett, who likes businesses that can generate growth without needing too much external funding.

Greggs shares currently offer a dividend yield of nearly 3%. I suspect profits might crash this year, but I’d expect next year to see a return to business as usual. In my view, this market crash could be an excellent opportunity to start buying this popular stock.

The post One FTSE 250 dividend stock I think Warren Buffett would buy today appeared first on The Motley Fool UK.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020