Stock splits have turned many investors heads in 2024. Walmart conducted a 3-for-1 stock split in February, its first in over two decades. Broadcom and Nvidia conducted 10-for-1 stock splits. Chipotle Mexican Grill split its shares 50-for-1.
Legendary investor Warren Buffett probably didn’t pay attention to any of those stock splits, though. Here’s Buffett’s favorite stock-split stock — and why he doesn’t plan on ever selling it.
A birthday present for Buffett
Buffett first invested a chunk of Berkshire Hathaway‘s money in Mitsui (OTC: MITSF) (OTC: MITSY) in 2020. Berkshire’s announcement of the purchase came on Aug. 30, Buffett’s 90th birthday.
Mitsui was part of a bundle. Buffett also bought shares of four other leading Japanese trading houses known in the country as sogo shosha: Itochu, Marubeni, Mitsubishi, and Sumitomo. All five companies are huge conglomerates that operate businesses in a wide range of industries, including energy, metals, and textiles.
Buying Mitsui looks like a smart move for Buffett in retrospect. The stock has nearly tripled in price since his initial purchase. Mitsui’s shares are up over 20% so far this year.
Technically, Mitsui’s share price has fallen quite a bit in 2024. The Japanese conglomerate announced a 2-for-1 stock split on May 1, 2024. This split took effect on July 1.
Why Buffett likes Mitsui
In his annual letter to Berkshire Hathaway shareholders earlier this year, Buffett wrote that Mitsui was one of several stocks that he expects Berkshire will “maintain indefinitely.” Why does the multi-billionaire investor like Mitsui so much that he doesn’t plan on ever selling it?
It’s not because of any stock split. Buffett fully understands that splitting shares changes nothing about Mitsui’s underlying business. He also bought the stock well before a stock split was discussed.
What Buffett did like back in 2020, though, was Mitsui’s earnings yield of close to 14%. He told CNBC later that all five Japanese stocks “were selling at what I thought was a ridiculous price, particularly the price compared to the interest rates prevailing at the time.”
Importantly, the businesses of Mitsui and the other four Japanese trading houses were in Buffett’s wheelhouse. He said, “They were companies that I generally understood what they did.” Indeed, he wrote earlier this year that each of the five “operates in a highly diversified manner somewhat similar to the way Berkshire itself is run.”
Anyone who has followed Buffett for long knows that trustworthy management teams are a must with any of his investments. Mitsui checks off this box, too. Buffett especially likes management’s “shareholder-friendly policies that are much superior to those customarily practiced in the U.S.”
Is this split-stock stock a good pick right now?
Is Mitsui still a good pick for investors who aren’t named Buffett? I think so.
The reasons why Buffett initially bought Mitsui are still applicable. Despite its tremendous gains in recent years, the stock remains attractively valued with a trailing 12-month price-to-earnings ratio of below 10.4.
Mitsui offers a solid dividend which yields nearly 2.4%. The company’s payout ratio is only 23.7%, which gives it ample flexibility to increase the dividend payout in the future.
The main knock against Mitsui is that its revenue and profits fell in the company’s latest quarter. However, these declines are due in large part to lower commodity prices that will likely only be temporary.
Mitsui probably won’t be an exciting stock for growth investors. But I suspect it will be quite attractive for value investors with a long-term perspective (like Buffett himself).
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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, Chipotle Mexican Grill, Nvidia, and Walmart. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
Warren Buffett’s Favorite Stock-Split Stock — and Why He Doesn’t Plan on Ever Selling It was originally published by The Motley Fool
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