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Verizon Communications: 4.3% dividend yield
Buffett and his investment team are also big fans of telecom giant Verizon Communications (NYSE: VZ) , which is sporting a 4.2% yield. Berkshire Hathaway owned just a hair over 15 million shares of Verizon as of the end of the first quarter, which is worth about $802 million. I suspect there are two main reasons why Buffett sticks with Verizon: the high barrier of entry in the wireless industry, and the juicy margins associated with the industry.
Within the U.S., there are really only four telecom companies that dominate the wireless scene, and only Verizon and AT&T have deep-enough pockets to invest billions upon billions annually in upgrading their infrastructures and data networks to meet the growing data demands of the American public. It would take an incredible amount of capital and a long period of time for any new entrant to gather the wireless following that these two telecom giants possess. To that end, this high barrier to entry helps to preserve Verizon's wireless market share, and it makes the company's cash flow somewhat predictable on an annual basis.
Because there are so few wireless choices for the consumer, Verizon also possesses substantial pricing power with its data plans. Although the company ditched cellphone contracts last year, it's had absolutely no problem keeping consumers loyal to the brand. In the first quarter, the company's wireless churn rate dipped below 1%, meaning it's losing very few customers to its competitors.
With a "steady as she goes" business model, Verizon is the perfect example of a high-yield Buffett stock.
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Sanofi: 4.2% dividend yield
While known for his penchant to tread lightly around healthcare companies, Warren Buffett also owns shares of French drugmaker Sanofi (NYSE: SNY) , which is currently yielding 4.2%. As of the end of Q1 2016, Berkshire Hathaway owned a little over 3.9 million shares of Sanofi, worth about $150 million.
On one hand, the danger of investing in pharmaceutical giants is that they'll eventually encounter the patent cliff. In Sanofi's case, it's been dealing with declining sales for Plavix, Allegra, and Lovenox, to name a few. However, there are plenty of growth channels within Sanofi's product portfolio.
For example, Sanofi sold $726 million worth of rare-disease drugs during the first quarter, an 8.5% increase from the year-ago quarter. Although rare diseases have limited patient pools, they're also usually devoid of competition. This gives Sanofi the ability to boost pricing to match or exceed the rate of inflation. The company also possesses strong pricing power with its rapidly growing multiple sclerosis product, and its vaccine segment.
Sanofi also intends to spread its wings, and grow via collaborations. Sanofi has partnered with Regeneron Pharmaceuticals to bring Praluent to market, a PCSK9 inhibitor that's designed to dramatically lower low-density lipoprotein cholesterol, or LDL-C, the bad kind of cholesterol.
This next-generation injectable medicine is a lot more expensive than traditional cholesterol-reducing medicines, but the results of Sanofi's and Regeneron's long-term cardiovascular outcome study could go a long way to justifying its $14,600 annual cost, and boosting sales. At its peak, Praluent could easily be a $2 billion to $3 billion per year drug if the long-term CV data proves superior to the current standard of care.
As long as Sanofi remains innovative, Buffett, Berkshire, and shareholders are liable to reap the rewards.
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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.
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