Berkshire Hathaway (BRK.A, BRK.B) is famous today as Warren Buffett’s investment vehicle. Investors read Buffett’s annual reports about the company and attend the annual meeting in droves. But in 1962, Berkshire Hathaway was a failing textile manufacturing company. Six decades later, it’s now the 7th most valuable enterprise on the planet by market cap – a Diversified Financials holding company worth $604 billion.
Behind this incredible turnaround is the Oracle of Omaha himself, Warren Buffett, one of the world’s wealthiest people. The infamous 92-year-old investor started buying shares in the company in 1962 and has been at the helm since acquiring it in 1965. As chairman and CEO, the decisions he’s made since then have, according to Buffett’s 2021 annual letter generated an average annual return of nearly 20%, which is double the S&P 500 Index!
Such impressive numbers explain why Berkshire Hathaway’s such a popular stock nowadays. Yet there’s one topic that remains an apple of discord among current and potential shareholders: dividends.
Does Berkshire Hathaway pay dividends? Keep reading to find out.
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Does Berkshire Hathaway Pay Dividends?
No, Berkshire Hathaway does not pay dividends. Despite holding approximately $106 billion in cash and actively pursuing investment opportunities that do, Buffett’s company refuses to issue dividend payments to shareholders.
This has been the official stance for all but one of Buffett’s years in charge. Two years after taking over the company, in 1967, Berkshire Hathaway issued a $0.10-per-share dividend. However, he’d later joke that he
“must have been in the bathroom when the dividend was declared.”
Interestingly, 1967 was also the year he began investing in other industries.
If you feel put out by the incongruity between Berkshire’s financial success and lack of dividends, then you’re not alone. Indeed, Buffett acknowledges the sense of frustration felt by many investors in his 2012 annual letter. There he writes,
“A number of Berkshire shareholders – including some of my good friends – would like Berkshire to pay a cash dividend. It puzzles them that we relish the dividends we receive from most of the stocks that Berkshire owns, but pay out nothing ourselves.”
As you might expect from someone with such a financial pedigree and wealth of investing experience, though, there are good reasons behind Buffet’s decision to forgo dividends. We’ll address a selection of them in the next section.
Why Doesn’t Berkshire Hathaway Pay a Dividend?
Dividends matter to investors because they are often a sign of a company’s quality. Yet, given Berkshire Hathaway’s self-evident success, there are obviously other factors behind its declination of them. Here are the main ones:
As Buffett goes on to say in his 2012 letter to shareholders:
“…our first priority with available funds will always be to examine whether they can be intelligently deployed in our various businesses.”
In other words, he believes profits are better spent on reinvesting in the company. Intent on growth, Berkshire Hathaway’s longstanding goal is to boost the efficiency of companies they own, enhance their reach, create new products/services, and improve whatever they already sell.
Contrary to how it may appear, this decision isn’t made purely for selfish reasons. Buffett believes that investors benefit more from the long-term growth of their stock values than from a yearly cash payment. Not everyone agrees, but you can’t argue with his results. Remember those annual returns we mentioned earlier? According to Business Insider, someone who invested $1,000 in Berkshire Hathaway in 1964 would now have over $10.5 million.
New Acquisitions and Stock Buybacks
Growth is the goal. But it isn’t fuelled solely by reinvesting in their current businesses. Buffett has two further uses for Berkshire’s excess capital in lieu of dividends:
Although he’s notoriously selective with stock picks, Buffett will purchase additional companies if he thinks it’ll make “shareholders wealthier on a per share basis than they were prior to the acquisition”. Indeed, he spent $51 billion on stocks earlier this year, which included several new businesses in both Europe and the United States.
- Stock Buybacks
If Buffett believes Berkshire Hathaway stock is selling at a significant discount to a conservative estimate of what they’re truly worth, then he’ll repurchase those shares. This actually happened in 2021, when Berkshire bought back a sizeable $27 billion of its stock.
It’s worth nothing that we’ve listed these in order of preference. Thus, if Buffett doesn’t reinvest in Berkshire’s current companies, he’ll chip away at its immense cash pile by purchasing shares in additional ones. If that doesn’t seem like the best use of capital, he’ll seek to repurchase stock instead.
Will You Purchase Berkshire Hathaway Stock This Year?
So, does Berkshire Hathaway pay dividends? No. But that doesn’t mean you shouldn’t buy its shares. As usual, it all comes down to personal preference and what you’re looking for in an investment opportunity. While some people will rue the lack of a dividend, they’re unlikely to complain about the value of their returns! After all, Berkshire’s Class A shares increased by 3,641,613% between 1964 and 2021, compared to the S&P 500 Index’s 30,209%, making many people like Stewart Horejsi and the Othmer’s extremely wealthy.
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