Warren Buffet is holding on to his very profitable Bank of America position.
In a CNBC interview that aired on Friday, the world’s most famous investor said he planned to hold his Bank of America warrants until just before they mature in 2021.
“We’ll exercise them probably the last month, which would be eight years or so from now,” Buffett said. “There’s no reason to exercise them sooner.” After all, “we love the position of being an owner.”
Of course, you would probably love being an owner too if you enjoyed an annual dividend of 6 percent on $5 billion worth of preferred stock. Buffet’s Berkshire Hathaway took a stake in Bank of America in August 2011. The warrants allow him to purchase shares at a price of $7.14, which is about where the stock was trading at the time. Since then, shares have doubled, meaning Buffett’s position has soared in value.
At the time, the fact that Buffett would getting into the stock was seen as a tremendously important vote of confidence for the company. But today, given the high dividend that Bank of America is being forced to pay, and the great deal of money that Buffett has made on stock appreciation alone, the deal has been criticized as a highly unfavorable one for the company.
Still, Bank of America CEO Brian Moynihan said in the same interview that he plans deal with more onerous investments before worrying about Buffett’s preferred stake.
(Check out: BAC's Moynihan: Consumers are spending)
“We’re trying to get 8 percent, 9 percent instruments out,” Moynihan said. So “there will be some day that we’ll talk about this, but it’s far out there.”
So what would make Buffett want to get out of the warrants?
“If there were a high dividend on the common” stock, then it would be “conceivable” that he would exercise the warrant and receive common stock in return, Buffett said. But given that Bank of America pays normal shareholders a quarterly dividend of just a penny a share, for an annual dividend yield of 0.28 percent, it looks like Buffett will be holding onto his existing position for some time to come.
So is Buffett’s steadfastness good news or bad news for Bank of America? And is it finally time for you to join Buffett in this high-flying stock? Watch the video above to find out.
- Banking & Budgeting
- Bank of America