How to Interpret Warren Buffett's New AT&T and Kraft Heinz Stakes: The Big Picture

The new total Berkshire Hathaway holdings, based on September 30 share prices, would value the new AT&T stake at roughly $1.9 billion and would value the Verizon stake at $645 million or so.

It is no secret that Buffett loves dividends. It is also now the case that investors can receive better dividend yields in telecom than they can in tobacco. AT&T’s stock drop in 2015 now gives it a yield of almost 5.8%, and Verizon’s pullback from highs has its dividend just shy of 5.0%.

Kraft Heinz is the stake that should stand out the most to investors. It was already well known that Buffett was an investor in Kraft Foods and separately was a participant, along with 3G Capital, in Heinz. Then that merger of the two food giants gave Berkshire Hathaway a massive stake in the combined company.

Kraft Heinz was formally listed as a huge 325,634,818 shares, worth almost $23 billion at the end of September. That stake was listed as being over $23.5 billion all-in on Kraft Heinz, as of the previously released September 30 balance sheet. The 13F filing of the full holdings showed the stake as being worth $22.983 billion.

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The Kraft Heinz stake had been previously written about in Berkshire Hathaway’s third-quarter earnings and balance sheet document. That specifies how the transaction looks and includes data about 3G, stated as follows:

Berkshire’s initial investments consisted of 425 million shares of Heinz Holding common stock, warrants, which were exercised in June 2015, to acquire approximately 46 million additional shares of common stock at one cent per share, and cumulative compounding preferred stock with a liquidation preference of $8 billion. The aggregate cost of these investments was $12.25 billion.

3G also acquired 425 million shares of Heinz Holding common stock for $4.25 billion. In addition, Heinz Holding reserved 39.6 million shares of common stock for issuance to its management and directors under equity grants, including stock options.

What has to be kept in mind now is that Berkshire Hathaway’s quarterly financial filing showed that approximately 58% of the aggregate fair value was concentrated in the equity securities of just four companies. These were listed as follows:

  • Wells Fargo & Co. (NYSE: WFC) as $25.2 billion
  • Coca-Cola Co. (NYSE: KO) as $16.0 billion
  • International Business Machines Corp. (NYSE: IBM) as $11.7 billion
  • American Express Co. (NYSE: AXP) as $11.2 billion

Now insert the more expanded equity value of $127.4 billion rather than the $106 billion prior grand total. The $22.98 billion for Kraft would now come to a rounded $87.1 billion. Future filings may say that Berkshire Hathaway’s public equity holdings are now dominated by five companies, comprising about 68.4% of the value of the public equities portfolios.

Buffett’s latest portfolio changes looked very different from past changes. It turns out that there were exceptions and reasons for each. Investors always need to consider the logic behind what they see reported just on a static basis as if there is really a vacuum.

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