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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Drizzt
Friday 2nd of November 2012
hi fintel, which cells are you talking about. perhaps you can elaborate?
fintel
Friday 2nd of November 2012
Hi Drizzt
My stock tracker spreadsheet is show a number of cells in error ("parse error").
Why is this so and how can they be fixed?
John
Monday 29th of October 2012
Tks for the good advice, Jeff. BTW I don't really go for too high div yield, regular div payment is more imp to me and the coy sud be in a biz I understand.
Jeff
Monday 29th of October 2012
Invest for dividend by all means. But follow Buffet to have a margin of safety when you go in. Also in increasingly dyanmic business environment, a current moat that ensures strong dividends may disappear over time. So monitor your dividend shares and swap them for new companies when the old ones are dying. Also, from a macro perspective, it makes little sense for companies to give high dividend yields when they can borrow money for much lower interest rates. If the yield is too high to be true, then it is likely the case (that it is not sustainable).
Drizzt
Monday 29th of October 2012
hi Jeff, some of the most wise advice in a long time.
John
Thursday 25th of October 2012
Buffett is a far sighted investor leveraging accordingly on his superb talent and long life experience to able see 5-10 years into the future. Shorter term investments are presumably easier to evaluate for most people thus will attract more competition which he wish to avoid. Most of us don't have his skills tfore hv to invest on what we know best out of our education, personal experience and particular circumstances. I still believe buying stocks for dividend income is perfectly sensible, especially for retirees like me.