- Warren Buffett boosts stakes in Japanese trading houses, eyes long-term investments.
- Earnings yield, dividends, and diversified operations make these companies attractive to Buffett.
- Berkshire Hathaway is open to further dealmaking opportunities with the firms.
Warren Buffett, the big-shot billionaire, was straight-up baffled by the chance to buy into five Japanese trading houses a couple of years ago.
Buffett, chatting with CNBC's Becky Quick on "Squawk Box" from Tokyo, was like,
"I couldn't believe we could get in on these companies!"
They were basically offering an earnings yield of around 14%, with dividends set to grow. Talk about a sweet deal!
Our main man, who also happens to be the chairman and CEO of Berkshire Hathaway, recently announced that he's boosted his stakes in each of the five major Japanese firms to 7.4%. He's even considering throwing more cash their way! His trip to Japan? Just a cool way to show these companies some love.
Now, if you're not familiar with "earnings yield," it's basically the profit per share divided by the share price. It's a favorite metric for value investors like Buffett, and the higher the number, the better the bang for their buck.
Buffett, who's a spry 92 years old, said on Wednesday that Berkshire's plan is to hold onto these investments for 10 to 20 years. They could even raise their stakes in the trading houses to 9.9%, but only with the green light from the firms' boards of directors.
What about making deals? Greg Abel, Berkshire's vice chairman of non-insurance operations and Buffett's likely successor, hinted that they're totally open to any extra opportunities with these firms. He said they'd be all over it in a flash, and they've got plenty of dough to back it up.
Fun fact: Buffett first snagged stakes in these firms back in August 2020 as a 90th birthday present to himself, dropping a cool $6 billion. The companies are Mitsubishi Corp., Mitsui & Co., Itochu Corp., Marubeni, and Sumitomo.
These Japanese trading houses, known as sogo shosha, are kinda like conglomerates that deal in a whole bunch of products and materials. They've played a huge part in boosting Japan's economy to the global stage, importing stuff like metals, textiles, and food.
Sure, some investors have thrown shade at these companies for their complicated operations and growing exposure to risks overseas. But for Buffett, their diverse operations are part of the charm. Plus, they've got those sweet, sweet high dividend yields and free cash flow.
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