If any investor has stood the test of time, it is Warren Buffett. For years, the “Oracle of Omaha” has had a rock-star-like presence in the investing world. His annual Berkshire Hathaway shareholders meeting draws literally thousands of loyal fans who are investors. Known for his long buy-and-hold strategies and his massive portfolio of public and private holdings, he remains one of the preeminent investors in the world.
One reason for Berkshire Hathaway's stunning success over the years is that Buffett and his right-hand man, Charlie Munger, have always tried to stay with stock ideas they understand. That has proven to be a winning hand. In addition, many of the companies in their portfolio pay solid and reliable dividends.
Given the buy and hold strategy of Berkshire Hathaway, we were surprised recently when Buffett unloaded four top stocks, three of which pay substantial dividends. Long-time investors and Buffett mavens are familiar with his quote that “His favorite holding for an S&P 500 stock is forever.” So, the sales were somewhat surprising.
Despite the sales by Berkshire Hathaway, all four of the companies are still rated Buy on Wall Street. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
General Motors
This is the one stock out of the four that does not pay a dividend, and the venerable car and truck giant is expected to be a big electric vehicle player. General Motors Co. ( NYSE: GM ) designs, builds and sells trucks, crossovers, cars and automobile parts and accessories globally. It markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Holden, Baojun and Wuling brand names.
GM sells vehicles, including purpose-built vehicles, to dealers for consumer retail sales, as well as to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies and governments.
In addition, it offers safety and security services for retail and fleet customers, including automatic crash response, emergency services, roadside assistance, crisis assist, stolen vehicle assistance, and turn-by-turn navigation. Its connected services comprise mobile applications for owners to remotely control their vehicles and electric vehicle owners to locate charging stations, on-demand vehicle diagnostics, smart driver, marketplace in-vehicle commerce, in-vehicle voice, voice assistant, navigation and app ecosystem, connected navigation, SiriusXM with 360L, and 4G LTE wireless connectivity.
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The company also develops and commercializes autonomous vehicle technology. Further, it provides automotive financing and insurance services, as well as software-enabled services and subscriptions.
Benchmark's $60 target price on General Motors stock is well above the $52.16 consensus target. The shares ended Thursday trading at $38.72.
STORE Capital
This company is focused on popular retail outlets and offers a solid entry point. STORE Capital Corp. (NYSE: STOR) is an internally managed net-lease real estate investment trust (REIT) that is the leader in the acquisition, investment and management of single-tenant operational real estate (STORE), which is its target market.
STORE Capital is one of the largest and fastest growing net-lease REITs. Its large, well-diversified portfolio consists of investments in more than 2,500 property locations across the United States, substantially all of which are profit centers.
The company announced earlier this year that it has entered into $600 million of unsecured long-term debt financing. This debt transaction consisted of $400 million five-year and $200 million seven-year floating rate loans.
The loans were effectively converted to a weighted average fixed rate of 3.68% for the term of the loans through the use of interest rate swaps. The company is using the proceeds of the transaction primarily to pay down amounts outstanding on its unsecured revolving credit facility and to prepay, without penalty, $134.5 million of STORE Master Funding Series 2014-1 Class A-2 notes, which bore a coupon rate of 5.0%, resulting in an annual interest expense savings of $1.8 million.
Shareholders receive a 5.42% distribution. The target price at Wells Fargo is $38, while the consensus target is $34.33. The stock closed at $28.38 on Thursday.
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U.S. Bancorp
This top super-regional bank is among the higher-paying dividend bank stocks and was a very surprising Buffett sell in a rising interest rate environment.
U.S. Bancorp ( NYSE: USB ) provides various financial services in the United States through a network of 2,434 banking offices, principally operating in the Midwest and western regions of the United States, as well as through online services and a network of 4,232 ATMs.
The company offers depository services, including checking accounts, savings accounts and time certificate contracts; lending services, such as traditional credit products; and credit card services, lease financing and import/export trade, asset-backed lending, agricultural finance and other products. It also provides ancillary services comprising capital markets, treasury management and receivable lock-box collection services to corporate customers; and a range of asset management and fiduciary services for individuals, estates, foundations, business corporations and charitable organizations.
In addition, U.S. Bancorp offers investment and insurance products to its customers principally within its markets, as well as fund administration services to a range of mutual and other funds. The company also provides corporate and purchasing card and corporate trust services, and merchant processing services, as well as cash and investment management, ATM processing, mortgage banking and brokerage and leasing services.
U.S. Bancorp stock comes with a 4.32% dividend. Wells Fargo has a $60 price objective. The consensus target is $57.70, and shares closed on Thursday at $48.99.
Verizon
This top telecommunications stock offers tremendous value at current levels, and Berkshire Hathaway owns 158.8 million shares. Verizon Communications Inc. ( NYSE: VZ ) is one of thelargest U.S. telecom companies. It provides wireless and wireline service to retail, enterprise and wholesale customers.
The company'swireless network serves approximately 120 million mobile connections with 115 million postpaid subscribers. Its wireline business has undergone a period of secular decline due to wireless substitution and cable competition.
Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.
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Verizon posted disappointing second-quarter results and the stock was hammered. In addition, the news of Buffett selling put even more pressure on the shares. Patient investors can buy shares now and collect the massive dividend while management sorts out the current issues.
Investors receive a 5.80% dividend. The $64 Cowen target price compares with a $60.64 consensus target. Verizon Communications stock closed on Thursday at $44.13.
Berkshire Hathaway is up modestly for the year, which is a huge achievement in what has been quite a bad year for stocks. However, almost three-quarters of the stocks in the portfolio are down, and Berkshire posted a stunning $40 billion loss for the quarter. The fact that Buffett would give up on these stocks is a little surprising. Patient investors who like dividends may do well with these fallen Buffett angels.
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