Buffett has a soft spot for dividends, but his subsidiary Berkshire Hathaway has always adhered to the strategy of not paying dividends, despite its huge cash reserves.
Warren Buffett (Warren Buffett) likes to buy shares that pay dividends, but his corporate group Berkshire Hathaway A (BRK.A.N) itself doesn't pay dividends, even though it has tens of billions of dollars in cash.
Regular dividends are a way to return shareholders, usually distributing a portion of a company's profits in the form of cash every quarter. Sometimes companies even offer small discounts for dividend reinvestment. But the main reason Berkshire doesn't pay dividends is that Buffett is confident in his ability to allocate capital in a more profitable way. Even if Buffett thinks he can't make effective use of his cash reserves, he will choose a buyback plan to return capital to shareholders rather than dividends.
In an interview with CNBC in 2018, Buffett said, “There is an implicit promise that the dividend will continue to be paid and will not decrease.” And buying back Berkshire's own shares is often more beneficial to shareholders. Of the two, “we're probably leaning towards repurchasing,” he said.
The 93-year-old investor also ruled out the possibility of a one-time special dividend. Almost all of the major holdings in Berkshire's stock portfolio are dividend stocks. Apple (AAPL.O) accounts for more than 40% of the portfolio and has a dividend ratio of 0.6%. Bank of America (BAC.N), Berkshire's second-largest holding company, has a dividend yield of 2.5%. The long-term Coca-Cola (KO.N) dividend ratio for long-term holdings is 3.1%. Chevron (CVX.N)'s dividend ratio is as high as 3.9%, while American Express (AXP.N)'s dividend ratio is 1.2%.
Berkshire launched a buyback program in 2011. In recent years, it has relied on buybacks due to fierce competition in transactions and expensive stock markets. In 2021, as Buffett found few opportunities for external acquisitions, the conglomerate's repurchase expenses reached a record $27 billion. Even so, buybacks have slowed over the past year.
Buffett recently recalled the only time Berkshire paid a dividend: it was in 1967, just two years after Buffett took over the bankrupt textile manufacturer, and the dividend was 10 cents per share.
“This was a terrible mistake,” Buffett said at the 2023 annual meeting, followed by a slight laughter. “I always tell people that I went to the men's restroom and the directors voted when I wasn't there. But that's not the case. I was there at the time, I admit it. In 2014, Berkshire voted to pay a “meaningful annual dividend.” A few Class A shareholders with original shares of Berkshire, each selling hundreds of thousands of dollars, voted against with 89 votes against 1, but even hundreds of thousands of Class B shareholders voted against 1 with 47 votes against 1.
“I think they want us to do whatever we think makes sense for all shareholders,” Buffett said in 2023. “Obviously, if we really think we'll never be able to use this money effectively in the business, we should take it out in one way or another.”
FAQs
But the main reason Berkshire doesn't pay dividends is that Buffett is confident in his ability to allocate capital in a more profitable way. Even if Buffett thinks he can't make effective use of his cash reserves, he will choose a buyback plan to return capital to shareholders rather than dividends.
Why does Berkshire not pay dividends? ›
Since Buffett took over the company, shares have risen in value by an average of nearly 20% per year, roughly double the rate of the S&P 500. This is the main reason Buffett hasn't authorized another dividend: He believes investors are simply better off having him and his team invest the capital.
What does Warren Buffet say about dividends? ›
Buffett has been known to favor companies that pay dividends, although his own company, Berkshire Hathaway, does not pay any to its shareholders. Instead, Buffett believes he delivers greater returns to his shareholders by letting them decide for themselves.
How much dividends does Berkshire get? ›
Berkshire Hathaway will receive about $980.13 million annually in dividends from its investment in Bank of America, not including reinvesting those dividends. If those dividends were reinvested, the annual dividend income would grow accordingly.
Does Berkshire Hathaway pay taxes on dividends? ›
3. Don't make investment decisions based on taxes. Berkshire has many long-term investments that have seen enormous gains over time such as Coca-Cola, American Express and Apple. Berkshire pays taxes on any dividends it receives from these holdings, but capital gains aren't taxed until shares are sold.
Will brkb ever pay dividends? ›
Going from Buffett's past history, it's unlikely that the company will pay investors a dividend while he remains in charge. There's every chance that Berkshire Hathaway's future CEO also decides against paying dividends, especially given Buffett's track record of creating shareholder value by other means.
Has Berkshire Hathaway ever paid a special dividend? ›
The only time Berkshire ever paid a dividend was in 1967. The payout was $0.10 per share. At the time, Berkshire had only one share class. "It was a terrible mistake," Buffet later conceded.
What is Warren Buffett's best dividend stocks? ›
- INTC Intel Corporation. 20.91 +1.25 (+6.36%)
- MSFT Microsoft Corporation. 431.34 +0.75 (+0.17%)
- AAPL Apple Inc. 216.32 -6.18 (-2.78%)
- TUP Tupperware Brands Corporation. 0.5099 -0.6901 (-57.51%)
- NCNA NuCana plc. 6.37 +3.83 (+150.79%)
Coca-Cola: $776 million in annual dividend income
Because the cost basis on the 400 million shares held by Berkshire is so low (about $3.2475 per share), co*ke's $1.94-per-share annual payout equates to a nearly 60% yield on cost for Buffett's company.
Who is the best dividend investor of all time? ›
Warren Buffett is widely considered the greatest investor of all time, and much of his investment strategy relies on collecting dividend payments.
He owns 15.1% of the aggregate economic interest in Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) Class A and Class C shares. This stake is worth roughly $146 billion right now. Berkshire Hathaway also looks like it might be Gates' favorite stock these days.
Why not just invest in Berkshire Hathaway? ›
Berkshire Hathaway doesn't pay dividends, so its return remains at 215%. But if you reinvested dividends into the S&P 500, your total return would be about 205%. Berkshire Hathaway's lead isn't quite as compelling anymore.
Who is the largest shareholder of Berkshire Hathaway? ›
Key Points
- Warren Buffett is by far the biggest shareholder of Berkshire Hathaway.
- His daughter, Susan Alice Buffett, is the second largest individual shareholder.
- However, there are bigger shareholders if you're willing to count institutions.
Key Points
Berkshire Hathaway has consistently outperformed the S&P 500 since 1965. The Vanguard S&P 500 ETF has generated bigger gains over the past two decades when factoring in reinvested dividends. Berkshire Hathaway faces more unpredictable headwinds than the latter.
What stock pays the highest dividend? ›
10 Best Dividend Stocks to Buy
- Verizon Communications VZ.
- Chevron CVX.
- Comcast CMCSA.
- Medtronic MDT.
- Dow DOW.
- LyondellBasell Industries LYB.
- Devon Energy DVN.
- Hershey HSY.
Berkshire Hathaway has famously paid no dividend, meaning you will pay no taxes along the way simply for owning the stock in a taxable brokerage account. While there are tax managed funds, their tax efficiency pales in comparison to Berkshire Hathaway.
Why doesn t Berkshire Hathaway split its stock? ›
Legendary value investor and Berkshire Hathaway CEO Warren Buffett has never allowed a stock split of his company's Class A shares (BRK-A), reasoning that to do so would counter his basic buy-and-hold investment philosophy.
Why don t growth companies pay dividends? ›
Companies that don't pay dividends on stocks are typically reinvesting the money that might otherwise go to dividend payments into the expansion and overall growth of the company. This means that, over time, their share prices are likely to appreciate in value.
Why should I not invest in Berkshire Hathaway? ›
The big takeaway here is that you are giving up a huge amount of control when you buy Berkshire Hathaway stock. You are, in essence, giving your money to Buffett and his team and letting them invest for you. That's more like a mutual fund than a stock investment.
Why is there no dividend payout? ›
Highlights. Firms pay no dividends due to cash constraints and investment opportunities. Firms do not pay dividends because of poor profitability and earnings. Firms avoid paying dividends due to the cost of raising external funds.
