Verizon Attracts Buffett, Other Big Players Betting on Boom in Telecom

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When Warren Buffett adds a new stock to his Berkshire Hathaway Inc. (NYSE: BRK-A) portfolio, everyone notices. When hedge fund managers John Paulson and Kyle Bass add the same stock and Daniel Loeb cuts his position, everyone pays even more attention.

In the first quarter of this year, Buffett added slightly more than 11 million shares of Verizon Communications Inc. (NYSE: VZ) to his holdings. That amounts to a fairly modest stake of $524 million in the telecom giant, but combined with a cut of a million shares in DirecTV (NASDAQ: DTV) it could signal which way Berkshire is betting in the merger-mania now sweeping the telecom giants.

Bass added a new position of 2.05 million Verizon shares, worth more than $97 million, to his holdings, and Paulson’s new stake is worth $415.9 million. Loeb cut his position in Verizon to $166 million, but added shares in Liberty Global PLC (NASDAQ: LBTYA) and Time Warner Cable Inc. (NYSE: TWC).

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DirecTV is believed to be in negotiations to be acquired by AT&T Inc. (NYSE: T) for around $50 billion, and Comcast Corp. (NASDAQ: CMCSA) has a $45 billion acquisition of Time Warner already in the works. Verizon just coughed up $130 billion to buy the 45% stake in Verizon Wireless held by Vodafone PLC (NASDAQ: VOD), so the company is unlikely to pile on even more debt while its free cash flow really begins to climb.

In the first quarter of 2014, Verizon reported free cash flow of $3.0 billion, compared with $3.9 billion in the first quarter of 2013. On a comparable basis, the company said that free cash flow available to it as a result of 100% ownership of Verizon Wireless was approximately $1.4 billion higher in 2014 than in the first quarter a year ago.

Verizon’s dividend yield is 4.4%, compared with AT&T’s 5.1%, but Verizon last raised its dividend in July, and that by a scant $0.01 per share per quarter. A bigger boost is almost certain to come this year. After all, Loeb, Paulson and Bass are not exactly shy about asking for more payouts.

Verizon shares were up about 2.5% just before noon Friday, at $49.14 in a 52-week range of $45.08 to $53.56.

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