Warren Buffett is known for his simple yet successful investing strategies, and one of his favorite types of stocks to invest in are those that pay dividends. A stable and established company that generates a good amount of free cash flow can pay shareholders a consistent quarterly dividend. While Berkshire Hathaway itself doesn't pay dividends, most of the companies it holds stakes in do. Embracing dividend stocks can provide investors with good supplemental income, and reinvesting dividends can add to the compounding effect. However, a well-rounded portfolio shouldn't only consist of dividend stocks. Younger companies focused on high growth typically don't pay dividends but investing in companies with strong fundamentals and financial stability can provide investors with peace of mind. As Berkshire Hathaway's success can attest, dividends can account for a large portion of investors' returns.