Berkshire Hathaway and Warren Buffett recently disclosed that they now own shares of Verizon Communications Inc. in a bet that the telecommunications conglomerate is going to benefit after buying out its partner in the biggest United States wireless business. Verizon actually posted the largest increase in the Dow Jones Industrial Average.
As of March 31, 2014, Berkshire Hathaway owns 11 million shares of Verizon we learn from a recent regulatory filing. The current value of the investment is roughly $530 million.
In February of this year, Verizon purchased Vodafone Group PLC’s minority stake in Verizon Wireless. This move will grant Verizon the ability to stop paying a dividend to the former partner. This $130 billion deal shows us that the telecommunications company believes that there is a lot more room for growth in the United States, regardless of the fact that most people in the country already own smart phones. The company made a forecast that they will see a 4% increase in revenue and higher adjusted profit margins.
“Verizon has an attractive dividend and an enviable position in the wireless market,” Kevin Roe said. He is an analyst with Roe Equity Research. “It’s a good ballast for investors in a choppy market.”
The telecommunications provider pays the 24th highest dividend in the S&P 500 index, and has a yield of 4.4%, we learn from Bloomberg data.
When asked to comment on the Berkshire Hathaway purchase, Verizon’s New York-based spokesman Bob Varettoni declined.
The 83-year-old Buffett has long held the belief in a concentrated approach to investing in stocks. Over half of the $118.5 billion equity portfolio at the Omaha, Nebraska Berkshire Hathaway is in just four companies: IBM, Coca-Cola, Wells Fargo and American Express.
More than likely, the investment in Verizon came from one of the two Berkshire Hathaway portfolio managers, Ted Weschler or Todd Combs, based on the size of the position, said Richard Cook, Cook & Bynum Capital Management LLC cofounder.
Within the same filing, we learned that the Berkshire Hathaway stake in General Motors has dropped to 30 million shares, a 25% decline. The company’s shares in DirecTV have gone from 36.5 million shares to 34.5 million shares in a three month period. Buffett told us that his stock pickers made both of these picks. Please note that both Weschler and Combs have outperformed the Standard & Poor’s 500 in 2012 and 2013.
“It’s very interesting to follow what Todd and Ted are doing,” said Cook, who manages a $310 million portfolio, and owns shares of Berkshire Hathaway. “They’re smart investors and they’ve had some home runs already.
The Buffett Approach
Bringing the 52-year-old Weschler and 43-year-old Combs into the company was a major cornerstone for Warren Buffett’s plan of succession. The CEO and chairman of Berkshire Hathaway has said that these individuals will jointly oversee all of the company investments once he is no longer at the helm of the business that he spent the last five decades building from a textile maker to one of the largest and most valuable companies the world has ever seen. This year, Berkshire’s market capitalization went past $300 billion for the very first time, buoyed by earnings from dozens of operating businesses and a rising stock portfolio.
Buffett’s amazing track record has gained him a large following among investors, who study the stock picks of Berkshire Hathaway for strategies and clues. When major equity purchases are announced, company shares often surge higher. In November 2013, when Buffett announced a $3.7 billion stake in Exxon Mobil, the biggest oil company in the world gained 2.2% the next day and closed at its highest level in a 33 year timeframe.
Berkshire’s Stake in Walmart
The Verizon stake has already advanced to $48.80. The largest shareholders in this company include the manager of American Funds mutual funds, Capital Group COS.; Vanguard Group Inc., who has more than 200 million shares; and Blackrock Inc., we learn from data compiled by Bloomberg. Recently, billionaire hedge fund manager John Paulson disclosed an 8.7 million share stake in Verizon.
Berkshire Hathaway also raised its stake in one of its other investments, Walmart stores, and added an additional 17% in shares to bring the current count to 58.1 million shares, we learned from the regulatory filing. The Bentonville, Arkansas-based retail holding is worth roughly $4 billion.
“In terms of what’s going to move the needle for shareholders, Buffett’s very large investments still dominate” the Berkshire Hathaway portfolio, Cook said.