Should investors expect Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) to return capital to investors by distributing a substantial amount of dividend? Buffett indicated in his 2012 letter to shareholders that he is considering a path towards a dividend, however, analysts and investors believe a dividend is unlikely.
They also cited that the conglomerate will not implement a dividend policy similar to Apple Inc. (NASDAQ:AAPL), which is one of the highest corporate dividend payers in America.
Forbes cited a comment from Thomas Russo, a partner at investment management firm Gardner, Russo & Gardner that a cash dividend is not an option while Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is under the leadership of the “Oracle of Omaha.”
Russo commented, “It is quite clear that during Warren’s lifetime a cash dividend would not be preferable.”
In his annual letter to shareholders last year, Buffett discussed that Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) will continue its policy in reinvesting its cash stockpiles instead of paying a dividend. Buffett wrote, “It’s our job to increase intrinsic business value — for which we use book value as a significantly understated proxy – at a faster rate than the market gains of the S&P. If we do so, Berkshire’s share price, though unpredictable from year to year, will itself outpace the S&P over time . . . We will stick with this policy as long as we believe our assumptions about the book-value buildup and the market-price premium seem reasonable.” He added, “If the prospects for either factor change materially for the worse, we will reexamine our actions.”
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) recently announced its $2.05 billion transaction to acquire the remaining 20% stake in IMC International Metalworking Companies.
Russo explained that Buffett did not actually say that he will support a cash dividend when he discussed the subject in his letter. Russo said, “I didn’t think that he conclusively supported a case for a cash dividend in that discussion.”
Gardner, Russo & Gardner stockholdings in the Class A shares of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) are worth approximately $800 million and more than $200 million of Class B shares based on data from Bloomberg. The investment management firm is one of the largest shareholders of Buffett’s conglomerate.
When asked about the similarity between Apple Inc. (NASDAQ:AAPL) and Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Russo explained that the two companies are different in terms of dividend policy. “The thing with Apple Inc. (NASDAQ:AAPL) is they just had such a prolonged period of over-earning and under-investing. Cash just built by the weight of gravity.” On the other hand, he said that Berkshire Hathaway obtained its cash from a cautious stance on underwriting insurance risk.
Mayer Shields, analyst at Keefe Bruyette Woods took another view, “I suspect that a dividend is inevitable . . . It is probably more palatable for that sea change to be done by someone else.” He also commented that during Steve Jobs’ leadership at Apple Inc. (NASDAQ:AAPL), he cannot recall a time when the tech giant paid any dividend. The company approved a dividend under Tim Cook’s management and Apple became one of the top corporate dividend payers in the United States.
Whitney Tilson, head of Kase Capital and investor of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) shares the same opinion. According to him, he does not expect any dividend under Buffett’s management. “I don’t think there is any chance that Berkshire will pay a dividend while Buffett is running Berkshire and I am happy with that,” said Tilson.
He projected that Buffett will remain the chairman and CEO of Berkshire Hathaway for another five years.
Meanwhile, Smead Capital chief investment officer William Smead commented, “Berkshire’s conglomeration of companies is likely to outperform the Standard & Poor’s 500 Index over the next 10 years.” Smead added, “If the company is growing at a compound annual rate of 15 percent, who cares if they pay a dividend.”
Since 1965, Berkshire Hathaway’s compounded annual book value growth is almost 20 percent, two times more than the performance of the S&P 500.