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- By Steve Gray Booyens
Berkshire Hathaway's (NYSE:BRK.A)(NYSE:BRK.B) latest 13-F filing for the first quarter of 2021 shows that they've opened a position of 146,716,496 shares in Verizon. Verizon is a steady dividend-paying stock, which used to be an index beater before tech found prominence after the initial Covid-19 pullback. The stock is currently underperforming, and seems as though it holds a decent amount of value. Let's take a look at what may have attracted Buffett to the stock.
Earnings and dividends
Verizon beat its earnings estimates in the first quarter with a revenue beat of $403.80 million and an earnings per share beat of $0.02. Analysts expect the company's revenue to grow by 4.32% and its EPS to grow by 3.94% for the remainder of 2021. With strong earnings being the backbone of the stock's performance, the 4.39% dividend yield shouldn't be an effort to sustain, despite the company's high debt load.
Verizon media sale and 5G
Verizon has sold its media business for $5 billion, including brands such as Yahoo and AOL. The sale will free up liquidity, which the company could use for growth or acquisitions. While sustaining earnings from core operations, the company will benefit from an accelerated 5G deployment. Verizon is currently working to deploy its 5G Ultra Network across the United States.
Verizon is a mature company, so dividends are a valuable instrument to use when valuing the stock. According to the Gordon Growth Model, the stock is worth $64.69 per share.
According to the company's dividend-based valuation, it's undervalued by roughly 11%. I assume that's because the free cash flows have struggled during Q1, and the market sentiment hasn't been in its favor.
Wall Street analysts have placed a similar 12-month price target on the stock with a high price target of $64, nearly matching the Gordon Growth Model's target.
Warren Buffet has always favored two principles that I believe apply to the Verizon investment. The first is "cash is king." Buffett enjoys investing in companies with strong earnings. Secondly, he's a value-seeking investor. Verizon seems to tick both of these boxes and can also be considered a provider of essential services, which makes it suitable for both value and dividend investors.
Disclosure: I don't own any positions in Verizon
This article first appeared on GuruFocus.