What can be said about Warren Buffett that hasn’t already been said? He built a fortune of over $100 billion purely through investing – and that’s after donating almost $40 billion to charitable causes over the years. His compound annual rate of return of 20% since 1965 is stratospheric.
Suffice it to say, he knows a thing or two about investing. And when he’s busy buying up a stock, it makes sense to at least take a look. That’s what today’s article is all about.
I want to share with you a stock that Warren Buffett has been busy buying up during the first quarter of this year. He’s got about $9 billion wrapped up in this investment, so you know he has some confidence in it.
Ready? Let’s dig in.
The stock in question is Verizon Communications (VZ). Verizon is a telecommunications behemoth with a market cap of $235 billion.
Warren Buffett clearly likes what he sees with Verizon. He picked up approximately 12.1 million Verizon shares in the first quarter of this year, adding to a position that now stands at approximately 158.8 million shares within the common stock portfolio he oversees for Berkshire Hathaway. That position has a market value of about $9 billion at today’s price.
It’s not hard to see what Buffett likes about this.
Verizon provides a ubiquitous service. Try living without your smartphone for a day. Exactly. It almost can’t be done. I would say that people view mobile communications and data to be about as important as electricity these days. It’s gotten to that point. The ubiquity is, of course, nice, but there’s more to like here.
Verizon is at the forefront of 5G.
5G promises to bring about a revolutionary change in the way people access and use the Internet. We’re not talking about just significantly faster speeds – although that’s nice. We’re talking AI, the Internet of Things, AR, VR, autonomous machines, etc.
5G could revolutionize life as we know it.
5G, smartphones, all of that mobile data people are consuming every day – this stuff requires networks. Networks like the one Verizon has and continues to further build out. In the meantime, the stock is cheap and offers a big dividend while you wait for the 5G revolution to play out.
The stock trades hands for a P/E ratio of below 13.
In this market, that’s extremely cheap. Of course, it deserves a lower multiple because its growth has been challenged in recent years. But the stock looks cheap not only relative to the market but also relative to itself.
Amazingly, this stock hasn’t yet recovered its pre-pandemic highs.
It was north of $60/share before the pandemic hit. And the company arguably has better prospects now than it did then. People are now using more mobile data than ever. Between streaming content and working from home, I don’t see consumers using less data than before. And it’s not like Verizon was all that expensive in early 2020 anyway.
Also, the stock offers a market-smashing yield of 4.4%.
Warren Buffett is smart. He knows that earning 4.4% on his cash is a lot better than treasuries will offer. It’s also better than what the stock market offers – this yield is more than three times higher than the S&P 500’s yield. It’s also 20 basis points higher than the stock’s own five-year average yield.
But this isn’t only an income play. Verizon also offers decent dividend growth.
Verizon has increased its dividend for 16 consecutive years. While the 10-year dividend growth rate of 2.6% won’t knock your socks off, it’s typically beaten inflation. And when you’re getting that huge yield, you don’t need a lot of dividend growth in order to make sense of the investment from a long-term aggregate income standpoint.
Verizon offers you a cheap way to follow in Buffett’s footsteps, collect a fat dividend, and expose yourself to 5G.
Every stock has risks, of course. Verizon faces regulatory, legal, and competitive risks just like every other business. And that 5G network is going to require a lot of capital expenditures to fully build out. Nonetheless, if you like the idea of investing like Buffett, and you’re looking for a large, safe, growing dividend, Verizon should definitely be on your radar. Stay tuned for the next article where I discuss some of Buffett’s recent stock sales.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
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