Sometimes, I wonder how frustrated people like Warren Buffett must feel. When he wasn’t buying anything during the crash, despite the fact that it was one of the worst crashes since the last recession, people speculated that he had lost his touch and is too afraid to benefit from the recession or the crash.
Now that he made his first major move since dumping the airline stock, people are trying to dissect his move to see the motivation and reasoning behind it. Many of them are doing so for research purposes, but a lot of people might simply be doing it to find flaws in this strategy. It must be frustrating to see how his every action and every lack of action stirs up the imagination of speculators.
But then I realize: the Wizard of Omaha probably doesn’t care what others think. And that’s something we investors need to pick up on. You should learn from everyone and everything you can, and then when you have made your decisions, don’t fall in doubt because of others’ speculation.
Warren Buffet’s energy investment
Contrary to the point just one paragraph ago, let’s try and speculate why Buffett invested in Dominion Energy, but only for educational purposes. Buffett’s investment moves do not translate literally for the retail investor, simply because there is a huge difference in scale. But buying a 7,700-mile pipeline and stake in both transmission and LNG facility, at a time when the energy sector is very shaky, must mean that Buffett considered it as good business.
And Dominion isn’t a typical energy stock anyway. The company is shifting rapidly toward net-zero emissions and exploring avenues like the infamous “pig-flatulence” electricity production project.
A focus on clean electricity and renewable energy, along with a major natural gas play, places Dominion in a unique spot. It must have a lot of long-term potentials to attract the US $10 billion from Buffett’s coffers.
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Energy stocks at home
There are plenty of energy and utility stocks in Canada that might make an excellent addition if you want to mimic Buffett’s move and add energy to your portfolio. There are plenty of options, but you can’t go wrong with the most conservative pick and buy Fortis (TSX:FTS)(NYSE:FTS).
The company has a dividend aristocrat for longer than several utility companies have been around. It’s a steady stock, and the company has a solid balance sheet.
The yield as well, while not as good as it was in March, is still decent at 3.7%. The dividends are well covered, as evident from a payout ratio of 49.7%. The company’s revenue generation did absorb a blow in the first quarter when it dropped by $45 million.
But it’s understandable seeing as what the economic situation is. Though it doesn’t have anything as unique in the bag as Dominion has, Fortis does have geographic diversification.
Currently, the company has ten utility operations in the US, Canada, and the Caribbean. It has a well-established consumer base, in both electricity (2 million) and gas (1.3 million). The company is also pursuing renewable energy at a rapid pace and has made great strides to reduce its carbon emissions. Safe to say that Fortis likely has a lot of good years ahead.
Warren Buffett’s move might be the first of many to come. The company still hasn’t depleted its cash pile, and even if he puts just half of it to work, Buffett can empower Berkshire Hathaway’s portfolio for years to come. But that depends a lot on whether another crash is coming or not.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Dominion Energy, Inc and FORTIS INC and recommends the following options: short September 2020 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and long January 2021 $200 calls on Berkshire Hathaway (B shares).