Buffett's Tiffany Debt Purchase Not a Good Reason to Jump In

Includes: BRK.A, BRK.B, TIF
by: Dividend Growth Investor

Warren Buffett is on the move again by purchasing $250 million worth of debt from Tiffany’s (NYSE:TIF). Half of the debt will mature in 2017, while the rest will mature in 2019.

Tiffany said the proceeds of the Notes will be used to refinance existing indebtedness and for general corporate purposes. Unlike Berkshire’s investments in General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS), these notes do not have warrants attached to them.

This is another one of the legendary Wizard of Omaha investments in high profile companies. His list of fixed income or preferred stock investments range from Goldman Sachs, General Electric, USG, Swiss Re and Harley Davidson (NYSE:HOG). In his article, Buying American, Buffett expressed his bullishness on the future of US economy and stock market. Once again however, it’s always good to read between the lines, as Buffett’s Berkshire Hathaway (NYSE:BRK.A) doesn’t seem to have purchased any common stock in the above-mentioned names. His holding company has rather gained preferential terms with the companies that received “Berkshire Hathaway Troubled Assets Relief Program”, as his name carries a very good premium.

I would not be investing in Tiffany’s based off Buffett’s fixed income play there; the company does appear to have a good presence in the luxury goods market. The current crisis hasn’t missed this jewelry retailer, which warned last month that its same-store sales for the holiday season fell 24 percent as sales slowed in its domestic stores.

It would be interesting to note if TIF would keep its dividend payment. Other similar Berkshire investments such as Harley Davidson cut their dividend payments just days after announcing Buffett’s investment in their fixed income notes. General electric on the other hand has not announced any cuts, although many investors believe that the dividend is on the chopping block.

Disclosure: None