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Why Did Warren Buffett Buy Verizon Stock?

By Matthew Frankel, CFP® - Mar 8, 2021 at 6:37AM

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The Oracle of Omaha just bet big on the telecom giant.

We recently learned that while Warren Buffett and his team made several stock purchases in the fourth quarter of 2020, the largest addition by far was the new almost $9 billion stake in Verizon (VZ -0.20%). In this Fool Live video clip, recorded on Feb. 22, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why Buffett might have decided to place such a big bet on the telecom giant. 

Jason Moser: Matt, let's tackle what's been going on in Berkshire Hathaway's portfolio. Let's start with the newcomers. There are four new stocks in Berkshire's portfolio. Correct me if I'm wrong; I feel like one of these new stocks he owned before, too. It's like he re-established a position in, I think, one of these companies, didn't he?

Matt Frankel: Yes. There were four. There was a company called E.W. Scripps (SSP 5.63%), which he technically bought in January, but we already knew about that one. That's the publishing company. There's Marsh & McLennan (MMC 0.19%), which is a financial services firm. Both of those are relatively small investments by Berkshire standards. When I say small, I mean only about a half a billion dollars. [laughs] The two big ones by far were Verizon and Chevron (CVX 0.59%). I know Buffett used to own Verizon to some extent, I think.

Moser: OK. I was thinking Chevron.

Frankel: Or was it Chevron?

Moser: For some reason, I felt like he maybe held an interest in Chevron before and then closed it out at some point.

Frankel: I think you're right. I have to double-check on the particulars of that. But those were big investments. They're not big compared to Berkshire's, say, Apple (AAPL 2.54%) or Bank of America (BAC 3.39%) investment. But those were built up over time.

Moser: Right.

Frankel: For the Verizon, one in particular was almost $9 billion.

Moser: Man!

Frankel: That's a lot for Buffett to spend on one stock to establish a position all at once. A lot of investors were not happy to see that those were the two big buys. I mean, $13 billion between Verizon and Chevron. Because a lot of people think of those as boring stocks. They thought Buffett lost his touch, things like that. A couple of things I would say to that. First of all, I would much rather $9 billion of Berkshire Hathaway's capital be in Verizon than in cash.

Moser: Yeah.

Frankel: It's a much more productive use of the money. Verizon pays a very nice dividend, I want to say in the 5% ballpark right now.

Moser: I'm looking at it right now -- 4.4% yield. I mean, you can't discount that.

Frankel: Right. What was it? Sitting in Treasury securities earning like 0.1%. So this is definitely a better use of capital.

Moser: Sure. 

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Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$48.94 (-0.20%) $0.10
Bank of America Corporation Stock Quote
Bank of America Corporation
$35.99 (3.39%) $1.18
Apple Inc. Stock Quote
Apple Inc.
$149.24 (2.54%) $3.70
Chevron Corporation Stock Quote
Chevron Corporation
$174.03 (0.59%) $1.02
The E. W. Scripps Company Stock Quote
The E. W. Scripps Company
$15.94 (5.63%) $0.85
Marsh & McLennan Companies, Inc. Stock Quote
Marsh & McLennan Companies, Inc.
$159.33 (0.19%) $0.30

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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