Key Points

• The Ten Titans illustrate the top-heavy nature of the U.S. stock market.

• The combined market cap of the Titans far exceeds the value of the entire Chinese stock market.

• Concentration adds risk, but the reward has historically been worth it.

• 10 stocks we like better than Nvidia ›

The "Ten Titans" are the 10 largest growth-focused S&P 500 (SNPINDEX: ^GSPC) components by market cap -- Nvidia (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), Broadcom (NASDAQ: AVGO), Tesla (NASDAQ: TSLA), Oracle (NYSE: ORCL), and Netflix (NASDAQ: NFLX).

Combined, these 10 companies alone make up a staggering 38% of the S&P 500.

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Even if you don't own any of the Ten Titans outright, the reality is they have a substantial impact on the broad market.

Here's what the dominance of the Titans in the S&P 500 means for your investment portfolio.

Image source: Getty Images.

Titans of the global economy

To understand the importance of the Ten Titans, it's helpful to take a step back and quantify the sheer size of the S&P 500.

The S&P 500 has a market cap of $54.303 trillion at the time of this writing and makes up over 80% of the overall U.S. stock market. According to 2024 data from the World Bank, the market cap of the entire U.S. stock market was $62.186 trillion. China, the second-largest stock market in the world, had a market cap of $11.756 trillion in 2024. As a ratio of stock market value to gross domestic product, the U.S. has a far larger market than many other leading countries due to its capitalist structure and the international influence of top U.S. firms.

So, the S&P 500 alone is worth several times more than China's stock market. And with the Ten Titans at 38% of the S&P 500, this group of companies alone is worth roughly double China's entire stock market and over a third of the value of the entire U.S. stock market.

This concentration means that just a handful of companies are moving not only the U.S. stock market but global markets as well.

S&P 500 concentration is a double-edged sword

The S&P 500's high allocation to growth stocks has benefited long-term investors. This becomes evident when comparing the performance of the S&P 500 and S&P 500 Equal Weight indexes.

Data by YCharts.

The S&P 500 Equal Weight index gives each of its components a 0.2% (or 1/500) weighting, so Nvidia makes up the same amount of the index as The Campbell's Company. But Nvidia is worth more than 400 times as much as Campbell's based on market cap, which explains why the chip giant has a 7.5% weight in the standard S&P 500 versus a 0.02% weight for the soup company.

If the S&P 500 Equal Weight index was outperforming the S&P 500, it would mean the top companies by market cap aren't doing well. But as you can see above, investors are benefiting from the concentration in companies such as the Ten Titans.

You may also notice the gap between the two indexes narrowed during the bear markets of 2020, 2022, and earlier this year. But overall, those downturns have been more than made up for by compounding gains.

In sum, having a concentrated index can be a good thing when the largest companies keep expanding, which is precisely what has happened with the Ten Titans.

Paradigm shifts in the major indexes

When I first began investing, I was taught the Nasdaq Composite was the growth index, the S&P 500 was balanced, and the Dow Jones Industrial Average favored value and income. That's no longer the case.

Today, I would define the Nasdaq as ultra-growth, the S&P 500 as growth, and the Dow Jones Industrial Average as balanced. Even the Dow's additions of Salesforce, Amazon, and Nvidia over the last five years have made the index more growth-oriented and less geared toward legacy blue chip dividend stocks.

These changes reflect the evolving economy and the international powerhouse of U.S. technology. Twenty years ago, the 10 largest S&P 500 components in order of market cap were ExxonMobil, Microsoft, Citigroup, General Electric, Walmart, Bank of America, Johnson & Johnson, Pfizer, Intel, and American International Group. Today, eight of the Ten Titans make up the eight largest S&P 500 components.

Balancing S&P 500 risks in your portfolio

Understanding that a handful of companies and growth-focused sectors like technology, communications, and consumer discretionary are driving the S&P 500 is essential for filtering out noise and making sense of market information.

For instance, knowing that the S&P 500 is more growth-focused, investors can expect more volatility and a higher than historical index valuation. This doesn't necessarily mean the S&P 500 is overvalued; it just means the composition of the index has changed. It's a completely different market when the most valuable U.S. company is Nvidia rather than ExxonMobil, and when a social media company like Meta Platforms is worth more than the combined value of several top banks.

As an individual investor, it's especially important to know what you own and why you own it. If you're buying an S&P 500 index fund, expect it to behave more like a growth-focused exchange-traded fund or mutual fund. That may be all good and well if you have a high risk tolerance, want more exposure to the Ten Titans, and have a long-term investing horizon. But for investors with a greater aversion to risk, it may make sense to pair the S&P 500 with value and income-oriented stocks or ETFs.

In sum, the S&P 500's concentration has been a net positive for the U.S. stock market, and I fully expect it to continue benefiting long-term investors because the Ten Titans are truly phenomenal companies. But the growth focus does require investors to reevaluate how the S&P 500 fits into their portfolio.

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Bank of America is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Intel, Meta Platforms, Microsoft, Netflix, Nvidia, Oracle, Pfizer, Salesforce, Tesla, and Walmart. The Motley Fool recommends Broadcom, Campbell's, GE Aerospace, and Johnson & Johnson and recommends the following options: long January 2026 $395 calls on Microsoft, short August 2025 $24 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Key Points

• Buffett's Berkshire Hathaway portfolio includes only one ultra-high-yield stock.

• However, his "secret portfolio" is loaded with ultra-high-yielders.

• The best of the bunch has increased its dividend for 30 consecutive years and has solid growth prospects.

Warren Buffett is known as a value investor, not as an income investor. However, that doesn't mean the "Oracle of Omaha" doesn't own stocks that many income investors would find highly attractive.

You might be surprised that Buffett even has positions in nine ultra-high-yield dividend stocks. By the way, the threshold used for a dividend yield to qualify as "ultra-high" is four times the yield of the SPDR S&P 500 ETF. Here are all of Buffett's ultra-high-yield dividend stocks, along with which one is the best of the bunch.

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Image source: The Motley Fool.

Berkshire Hathaway's sole ultra-high-yielder

Buffett's Berkshire Hathaway portfolio features only one ultra-high-yield dividend stock: Kraft Heinz (NASDAQ: KHC). The food and beverage company pays a forward dividend yield of 6%.

Kraft Heinz's dividend yield isn't so high because the company has increased its dividend payout. Instead, it's the result of a steadily deteriorating share price over the last few years, combined with maintaining the dividend at the same level during the period.

Berkshire does have stakes in a couple of other stocks with yields that aren't too far away from meeting the ultra-high threshold. Oil and gas giant Chevron offers a forward dividend yield of 4.61%. Satellite radio and podcast provider Sirius XM Holding's yield is 4.45%. However, the stocks didn't quite make the cut for our list.

Buffett's "secret portfolio"

Where can Buffett's other seven ultra-high-yield dividend stocks be found? In his "secret portfolio." I'm referring to the stocks owned by New England Asset Management (NEAM).

Berkshire Hathaway acquired General Re in 1998, which had acquired NEAM three years earlier. While NEAM reports its stock holdings to the U.S. Securities and Exchange Commission separately from Berkshire, Buffett owns all of the stocks in its portfolio just as much as he does any stock listed in Berkshire's SEC filings.

NEAM's two highest-yielding stocks are both business development companies (BDCs). Globus Capital BDC (NASDAQ: GBDC) pays an especially juicy forward dividend yield of 11.17%. It's followed by Ares Capital, the largest publicly traded BDC, with a yield of 8.57%.

A couple of big pharma stocks in Buffett's secret portfolio pay great dividends. Pfizer's (NYSE: PFE) forward dividend yield is 6.78%, while Bristol Myers Squibb (NYSE: BMY) offers a forward yield of 5.29%.

There's one ultra-high-yield overlap between Berkshire's and NEAM's portfolios -- Kraft Heinz. NEAM also owns another food company with an exceptionally high dividend payout. Campbell's (NASDAQ: CPB), which is best known for its soups, pays a forward dividend yield of 4.99%.

Two real estate investment trusts (REITs) are also in the mix. Realty Income's (NYSE: O) forward dividend yield is 5.6%. Lamar Advertising's (NASDAQ: LAMR) yield is 4.99%.

Finally, Buffett owns a stake in telecommunications giant Verizon Communications (NYSE: VZ) via NEAM's portfolio. Verizon's forward dividend yield is a lofty 6.22%.

The best of the bunch

How can we determine which of these ultra-high-yield dividend stocks owned by Buffett is the best of the bunch? We should obviously consider the dividend yield. In addition, the ability of the company to continue paying (and preferably increasing) its dividend is important. Growth prospects and valuation should be included, too. Based on these criteria, I think three of the nine stocks stand out above the rest.

Ares Capital's sky-high yield is a big plus. The BDC has either maintained or grown its dividend for 63 consecutive quarters (almost 16 years). It's the leader in the fast-growing private capital market. Ares Capital has also trounced the S&P 500 since its initial public offering in 2004.

Verizon is a longtime favorite for income investors. Its juicy dividend appears to be safe with the company's growing free cash flow. Verizon has also increased its dividend for 18 consecutive years. The biggest knock against the telecom provider is that its revenue and earnings growth haven't been spectacular. However, Verizon could enjoy stronger growth going forward once its acquisition of Frontier Communications closes.

The best stock overall of the group, in my opinion, is Realty Income. Its dividend yield is very attractive. Even better, the REIT pays its dividend monthly and has increased its dividend for an impressive 30 consecutive years.

Realty Income has delivered a positive total operational return every year since its IPO in 1994. Its diversified real estate portfolio, with nearly 1,600 clients representing 91 industries, helps make the company's cash flow stable. The REIT also has strong growth prospects, particularly in Europe, where it faces minimal competition.

The main drawback with this stock is its valuation. Realty Income's shares trade at 43 times forward earnings. However, I think the company's sterling track record justifies a premium price tag.

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Keith Speights has positions in Ares Capital, Berkshire Hathaway, Bristol Myers Squibb, Chevron, Pfizer, Realty Income, and Verizon Communications. The Motley Fool has positions in and recommends Berkshire Hathaway, Bristol Myers Squibb, Chevron, Pfizer, and Realty Income. The Motley Fool recommends Campbell's, Kraft Heinz, and Verizon Communications. The Motley Fool has a disclosure policy.