Why Big Money Investors Love Verizon Communications Inc.

Three well-known investors bought Verizon this year, and you should take notice.

May 16, 2014 at 3:30PM
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U.S. stock markets were rising in late afternoon after a slow start to Friday's trading. The Dow Jones Industrial Average (DJINDICES:^DJI) was up 0.21% at 3:30 p.m. EDT after bouncing near breakeven for most of the day. The one economic report that caught investors' attention was the Thomson Reuters/University of Michigan initial consumer sentiment reading, which fell to 81.8 in May from 84.1 in April. Consumers drive 70% of the economy, and the more confident they are the more the economy is likely to grow. So this reading could lead to some anxiety in the short term.

One stock that is charging higher today is Verizon Communications (NYSE:VZ), up more than 2%, which has become a popular stock among well-known investors.

Hedge funds bet on Verizon
In regulatory filings, it was revealed that Dan Loeb's Third Point, John Paulson's Paulson & Co, and Warren Buffett's Berkshire Hathaway all added positions in Verizon in the first quarter, highlighted by an 11-million-share purchase by Buffett.  

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Verizon's Share Everything plan is bringing in customers and keeping them with Verizon.

There are three big reasons Verizon is a favorite of investors, led by its massive competitive moat in the U.S. wireless market. The company has the biggest and best network, something that took billions of dollars to build and would be incredibly expensive to replicate. AT&T can compete on infrastructure, which essentially creates a duopoly in wireless, but T-Mobile and Sprint have to compete on price, leaving Verizon with the customers willing to pay for high-margin data plans.

A moat like that usually doesn't come with a low stock price, but it could be argued that this is one of the best values on the market. Verizon shares trade at 11 times trailing earnings and investors get a 4.4% dividend yield.

The competitive moat and value is topped by more opportunities for long-term growth. Verizon added 2 million retail customers in the last two quarters, and a higher percentage are on lucrative LTE plans with multiple connections. That makes Verizon's product very sticky and will bring in new customers as content demand grows.  

Verizon isn't a sexy name on the market, but it's a great company with a wide moat, good value, and opportunities for growth over the long term. I, for one, agree with the big names who bought Verizon in the first quarter and think this will be an outperforming stock for years to come.

Top dividend stocks for the next decade
Verizon is a top dividend stock and the smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Travis Hoium manages an account that owns shares of Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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