Why Warren Buffett Now Likes Telecom

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Investors love tracking the stock purchases and acquisitions of Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A). His being touted by the financial press as the world’s greatest investor of modern history just makes the so-called whale watchers follow his lead. In all the years we have covered the Buffett holdings each and every quarter, we have finally seen Team Buffett make a serious acquisition of a telecom stock: Verizon Communications Inc. (NYSE: VZ).

This Verizon stake was listed as a new position of 11,022,743 shares, worth some $524 million at the end of the first quarter. With more than $100 billion in public stocks, having more than $500 million in a stake may seem tiny in the grand scheme of things. Even though this was likely the work of Ted Weschler or Todd Combs, this stake is one that cannot be ignored.

Now, let’s consider that Berkshire Hathaway has a large stake of DirecTV (NASDAQ: DTV) as well. We did see that it was a slightly lower stake of 34.514 million shares, versus a 36.514 million share stake before. We also noticed that it had been higher at about 37.275 million shares last June. Still, Berkshire Hathaway is now the largest shareholder of DirecTV. What stands out is that DirecTV now is considered to be buyout bait by AT&T Inc. (NYSE: T), the key rival for Verizon.

Would Buffett indirectly become a major holder of AT&T as well? The current value of the DirecTV stake, assuming Combs or Weschler have not sold more shares, is worth more than $2.9 billion. That stake is worth about 10% more now than at the end of the first quarter — being a buyout candidate often does that.

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Lastly there are the Liberty stakes. These positions are complicated, and they are complex because of their holdings in media, telecom and communications. Liberty Media Corp. (NASDAQ: LMCA) was the same stake of 5.3 million shares, and the Liberty Global PLC (NASDAQ: LBTYA) stake was grown to 14.693 million shares. Again, these are complicated entities of John Malone, but Buffett has his hands in the pie here in telecom and media too.

Everyone knows that Buffett loves dividends, even if he himself refuses to pay a dividend to his shareholders. We recently featured Buffett’s nine top dividend stocks, and Verizon’s 4.4% yield would put it at the top of that list. If he ends up being an AT&T shareholder, he will be getting a 5.1% dividend yield there.

It is well known that Buffett enjoys holding companies that have a dominant position and that are easily predictable for earnings and cash flow. Is this a signal that Buffett’s team thinks the telecom sector has finally matured almost to its fullest extent? Perhaps. Stay tuned, this is a new direction for Berkshire Hathaway.

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