Berkshire Hathaway (BRK-A) is one of the great American success stories.
The company’s humble beginnings can be traced back to an ailing New England textile business in the 1960s. Warren Buffett began purchasing shares and eventually instituted himself as Chairman and CEO.
Today, Berkshire is a diversified conglomerate with substantial operations in the following industries:
- Insurance (GEICO, General Re)
- Energy & Utilities (Berkshire Hathaway Energy)
- Materials & Construction (Clayton Homes)
- Railroads (Burlington Northern Santa Fe)
Along with many other holdings.
For investors, Berkshire has many of the characteristics of a great investment – a wide economic moat, a strong track record, and some of the most shareholder-friendly management in the business.
There’s just one problem – the company doesn’t pay a dividend. Berkshire Hathaway is the furthest thing from a Dividend Aristocrat, and management isn’t shy about rubbing this in.
“The question is about evaluating Berkshire when it doesn’t pay any dividends. And it won’t pay dividends, either. That’s a promise I can keep. All you get with Berkshire stock is that you can stick it in your safe deposit box, and every year you take it out and fondle it.â€
– Warren Buffett
However, the winds of change are blowing at Berkshire. The company is larger than ever before, and inevitable management changes have driven many investors to wonder if the company’s dividend policy is about to change.
This article will discuss the possibility of Berkshire Hathaway paying a dividend, in detail.
Understanding Berkshire’s No-Dividend Policy: The Buffett Factor
Before explaining why Berkshire’s dividend policy may change in the future, it is useful to understand why the company currently pays no dividend.
One of the biggest reasons is the company’s current leadership. Warren Buffett is arguably to most adept capital allocator of all time.
This means that every dollar of dividend payments received by shareholders is one less dollar of capital managed by Buffett. Unless you believe as an investor that you can outperform Warren Buffett, dividends are detrimental to your total returns are a shareholder of Berkshire Hathaway.
Buffett understands this, and he is against dividend payments as a result. For instance, when asked about Berkshire’s single historical dividend payment (which occurered in 1967), Buffett joked that he “must have been in the bathroom†when the decision was made.
