Warren Buffett was talking to CNBC this morning and was asked why in this environment he wouldn’t buy AT&T and Verizon which have a toll bridge aspect to their business and can be seen as a utility.
The interesting thing is that he says he does not know how they look like 5 to 10 years from now. The key factor why he buys stocks is for future earnings NOT dividends.
He sees more value in them buying back shares like IBM. He is a fan of share repurchases as it reduces share count and increases ownership of current stockholders and increases intrinsic value per share if repurchases occur at attractive levels.
His thoughts are interesting because in a time where dividend investing is the rage, one needs to know that dividends is just one kind of investor returns. Share repurchases at below intrinsic valuation enhances existing share holders.
What’s interesting as well is, as much as we think we know the telecom business, it seems the future of telecoms is not as sanguine as it was made out to be. It could all turn out to be ok, but telecom have always been evolving and at certain stages it is not a very cash generating business. Buffett not buying means he doesn’t see a definite outcome.
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