Berkshire board fends off dividend proposal


Unsurprisingly, the Berkshire Hathaway (BRK.A, BRK.B) board is recommending shareholders vote against a proposal requesting the institution of a substantial dividend. "Whereas the corporation has more money than it needs, and since the owners unlike Warren Buffett are not multibillionaires, the board shall consider paying a meaningful annual dividend on the shares."

"Our shareholders are far wealthier today than they would be if the funds we used for acquisitions had instead been devoted to share repurchases or dividends," responds the board.

Warren Buffett has previously said he would consider a payout only when he runs of places to invest, which, according to his annual letter, he's not close to.

In other news, Warren Buffett's compensation rose 15% to $485,606 in 2013, though his salary remained at $100K. More importantly, what was The Oracle's tax rate?

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Comments (30)
  • Transcripts&10-K's
    , contributor
    Comments (1220) | Send Message
     
    "Whereas the corporation has more money than it needs, and since the owners unlike Warren Buffett are not multibillionaires, the board shall consider paying a meaningful annual dividend on the shares."

     

    What is wrong with these people? They don't seem to comprehend that Berkshire continues to find ways to use these funds intelligently - look no further than the $25B+ spent purchasing BNSF just a few years ago.

     

    If you do not think management will do a good job allocating capital going forward, despite a multi-decade track record of doing so, then sell the shares; people who understand basic math should hope that Warren and Charlie keep retaining funds if they're future decisions will be anything like the ones they've made in the past (on average).
    14 Mar 2014, 01:14 PM Reply Like
  • InmanRoshi
    , contributor
    Comments (217) | Send Message
     
    These people are morons. I'm would assume people invest in BRK.B know Buffett's attitude on dividents. It takes all of a Google search. If you can't do 30 seconds If you don't know the culture of the company you're purchasing partial ownership in, you have no one to blame but yourself.

     

    People invest in Berkshire because they specifically believe Buffet will do a better job allocating their capital then they can individually (and given his track record it would be a fair assumption). I don't know why you give Buffett your capital only to demand that he hand it right back, other than you're desperately eager to pay Uncle Sam.
    14 Mar 2014, 03:34 PM Reply Like
  • redarrow5150
    , contributor
    Comments (1375) | Send Message
     
    I think they should. They've become too big and the growth because of the size of the company is now lagging. Doesn't mean it's a bad stock but for growth purposes it almost seems like this stock has become a mutual fund.
    14 Mar 2014, 01:25 PM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (1220) | Send Message
     
    "I think they should. They've become too big and the growth because of the size of the company is now lagging. Doesn't mean it's a bad stock but for growth purposes it almost seems like this stock has become a mutual fund."

     

    Define "too big" - is there a certain size that companies hit where they should stop reinvesting in internal projects / looking for intelligent M&A (based on ROI) and default to 100% dividend payout ratio? Is this a certain number, did you just make it up - basically, what is the rationale / explanation for that statement? If you can use real numbers from Berkshire that would be preferred.

     

    Same thing for growth - it's lagging what? GEICO continues to grow and outpace its competitors, and it is much bigger than it was 10 years ago. Same thing is true for BNSF, Mid-American, and others. Should they not invest there when the have the opportunity to because Berkshire is "too big"? The real question is are the incremental investments adding value; the answer, per the reported financials, is yes.

     

    Let's look at earnings: Berkshire reported $19.5 billion in net earnings last year, and a trailing average of $15 billion / year over the past three years. Ten years ago Berkshire earned $8 billion, with trailing average three year earnings of $5 billion / year (I substituted 2000 for 2001 to account for 9/11 - i.e. make the earnings figure higher). Using that math, "average" earnings (the 3-year measure) have increased by 11.6% a year over the past decade.

     

    Compare this to the S&P 500: earnings in 2013 were ~$110, twice as high as a decade earlier - an increase of 7.2% per annum.

     

    People use the useless terms like "too big", "become a mutual fund", etc, without any explanation / justification (buzz words). Here's another example - of Berkshire's ~$117 billion in equity investments at year end, more than 55% was is in just four companies (KO, AXP, IBM, WFC).

     

    Most people are more diversified in their personal portfolio than Berkshire is, with $117B in equity investments - I think they're confused about which one is more like an index / mutual fund...
    14 Mar 2014, 01:49 PM Reply Like
  • physdude
    , contributor
    Comments (160) | Send Message
     
    Further, the dividends make no sense whatsoever from a tax perspective. It is good to see that my faith in Buffett has been well rewarded. I unfortunately doubted his rationality and sold about 10% of my position before earnings as I thought that he may institute a dividend after failing the five year test. I am not making that mistake again and will definitely vote against this irrational and wealth-destroying proposal.
    14 Mar 2014, 01:53 PM Reply Like
  • redarrow5150
    , contributor
    Comments (1375) | Send Message
     
    IMO they've become very big. I've seen a few companies do this as well like GE or TYCO. Just because one aspect of Berkshire is growing doesn't mean the rest of the portfolio is doing the same. Again not a knock but Berkshire is more of a value stock than a growth. Buffet when acquiring companies wants great balance sheets with brand names but when obtaining or getting involved with these companies a lot of the growth is pretty much behind them. One last example of what I'm saying is IBM.
    14 Mar 2014, 03:14 PM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (1220) | Send Message
     
    "IMO they've become very big."

     

    You're unsubstantiated conclusion that Berkshire is "too big" isn't sufficient reason to start paying a dividend.

     

    In your defense, your explanation is more logical than the proposals author; the proposal is literally the one sentence quoted above...

     

    http://1.usa.gov/1nqc1Nf
    14 Mar 2014, 03:21 PM Reply Like
  • InmanRoshi
    , contributor
    Comments (217) | Send Message
     
    When you buy established companies at a bargain, they still grow. Like when he bought $5 BoA prefered options in 2011, which is now worth $11 billion. Which is the same position he has in IBM, except it's not even listed on the books.

     

    If I wanted to buy Netflix, Chipotle or Amazon, I could do that myself without going through BRK.
    14 Mar 2014, 03:43 PM Reply Like
  • dealraker
    , contributor
    Comments (915) | Send Message
     
    You are getting stock price confused with business, a common issues for the naive investor.
    15 Mar 2014, 07:34 AM Reply Like
  • Early Retiree
    , contributor
    Comments (1479) | Send Message
     
    "Our shareholders are far wealthier today than they would be if the funds we used for acquisitions had instead been devoted to share repurchases or dividends."

     

    This confirms what I'm saying here (and has caused lots of stir among the SA community):
    http://seekingalpha.co...
    and here:
    http://seekingalpha.co...
    14 Mar 2014, 01:36 PM Reply Like
  • Mike Serebrennik
    , contributor
    Comments (1239) | Send Message
     
    "Our shareholders are far wealthier today than they would be if the funds we used for acquisitions had instead been devoted to share repurchases or dividends."

     

    ...If they did not have to sell the stock during dips of 1999-2000, 2008-2009 and 2011 for example. They are not as wealthy if they did.
    14 Mar 2014, 01:45 PM Reply Like
  • physdude
    , contributor
    Comments (160) | Send Message
     
    Why would you sell when it it obviously undervalued? Isn't not doing that the essence of Buffett's philosophy?
    14 Mar 2014, 01:54 PM Reply Like
  • chopchop0
    , contributor
    Comments (5271) | Send Message
     
    "If they did not have to sell the stock during dips of 1999-2000, 2008-2009 and 2011 for example."

     

    Sept 2011 was a prime time to BUY BRK shares.... it was trading as close to BV as it ever had been. I added shares to my roth big time then <$70

     

    Selling your solid stocks when they are down is never a good idea for building wealth :)
    14 Mar 2014, 03:25 PM Reply Like
  • InmanRoshi
    , contributor
    Comments (217) | Send Message
     
    If you believe a big stock drop off is the time to sell your equities, you probably should have never aligned your money with Buffett's philosophies on finance in the first place.
    14 Mar 2014, 04:06 PM Reply Like
  • Mike Serebrennik
    , contributor
    Comments (1239) | Send Message
     
    I am saying that a portfolio can become depleted IF a retiree needs current income and is FORCED to sell a stock in a down market because it isn't paying a dividend. But of course, if there is a large enough cash cushion to avoid this forced selling, things may be OK.
    14 Mar 2014, 04:10 PM Reply Like
  • DAVE22Q
    , contributor
    Comments (413) | Send Message
     
    any retiree who has to sell stock to live has done a piss poor job of planning. if you require cash income you need to buy cash generators- hi dividend stock, preferreds or bonds. buying a growth stock like BRK B should be seen as long term with selling to be based on significant changes in the market such as an apparently unjustified major price rise or a change in the direction of the economy.
    14 Mar 2014, 04:50 PM Reply Like
  • CapVandal
    , contributor
    Comments (812) | Send Message
     
    Buying Berkshire for the dividend is like going to Casablanca for the waters.

     

    And when the chairman of the board also has controlling interest in the company -- all I can say to the idiotic 'activist' shareholder is to get a life.
    14 Mar 2014, 01:48 PM Reply Like
  • redarrow5150
    , contributor
    Comments (1375) | Send Message
     
    I don't believe that would be the ONLY reason people why buy Berkshire.
    14 Mar 2014, 03:16 PM Reply Like
  • Mike in AZ
    , contributor
    Comments (2) | Send Message
     
    I agree 100% - what is wrong with these people?

     

    Leave the man alone. He is a national institution. If you don't like what he doing, sell your shares.
    14 Mar 2014, 01:50 PM Reply Like
  • Energysystems
    , contributor
    Comments (2127) | Send Message
     
    As long as the returns are higher with rolling $$ back into more investments, I agree with staying the course. Will that be true 10, 20, 30 years from now? Who knows. But if it works, it works for me.
    14 Mar 2014, 01:52 PM Reply Like
  • canuck671
    , contributor
    Comments (55) | Send Message
     
    If you don't like what the company is doing, vote, if you still have a problem, sell. Very easy.
    14 Mar 2014, 02:01 PM Reply Like
  • redubya
    , contributor
    Comments (2) | Send Message
     
    RE: The Dividend Proprosal

     

    Let me see if I understand this correctly. You want to change the BRK plan that was put into effect back in the 1960's by Mr. Buffett. A plan that has allowed investors to buy the stock and then watch it compound over the years at a very good rate. All the while, no fees, no taxable dividends, or other taxable events occur. And WHEN you decide when to sell --- then a LTCG taxable event.

     

    AND YOU WANT TO DO WHAT?
    14 Mar 2014, 02:18 PM Reply Like
  • CLUB 198
    , contributor
    Comments (105) | Send Message
     
    Aagin....
    If you don't like the performance of the stock (which just hit it's all time high)...
    If you want a stock that pays dividends....
    Sell it...one one is holding a gun to your head!!!
    I don't think (nor do I want) Warren or Charlie to change the rules now

     

    IT AIN'T BROKEN....so....
    14 Mar 2014, 02:30 PM Reply Like
  • psychological-dividends
    , contributor
    Comments (820) | Send Message
     
    Well, as a large shareholder of Berkshire, I would certainly vote against a dividend proposal. I don't want the tax implications.
    14 Mar 2014, 02:55 PM Reply Like
  • redubya
    , contributor
    Comments (2) | Send Message
     
    I was remiss in my earlier post.

     

    I forgot to add the most important thing. I have had implicit trust in Warren and Charlie and their business acumen. In my opinion, it is second to none. Their qualities are hard to find these days.

     

    My thanks to Mr. Buffett and Mr. Munger for a job well done over many years. Keep on "truck'in" guys!
    14 Mar 2014, 02:57 PM Reply Like
  • juvy49
    , contributor
    Comment (1) | Send Message
     
    I have been an investor for about three years, and I believe what Warren is saying is the truth...keep your shares and you will be justly rewarded for your efforts.
    14 Mar 2014, 03:03 PM Reply Like
  • Mike Serebrennik
    , contributor
    Comments (1239) | Send Message
     
    I actually want BRK to continue doing what they are doing - I have BRK in a growth-oriented part of my portfolio and use other stocks for dividends.

     

    What of the scenario where the market is grossly overvalued, as it can be for years, and BRK has no attractively priced businesses to buy? What should they do with all the excess cash?
    14 Mar 2014, 04:12 PM Reply Like
  • veritas vincit
    , contributor
    Comments (74) | Send Message
     
    Excess cash...oxymoron of the year.

     

    Nevertheless, I'll bite...

     

    How about ~Hold cash to

     

    Buy excellent companies or shares of excellent companies when they go "on-sale"

     

    Buy-back shares of BRK.A and/or .B

     

    Maintain a fortress balance sheet.

     

    Buy some very high-grade bonds and/or T-notes, if future Fed actions become anti-inflationary. (Anyone wish they'd bought those 30 yr notes back in the early '80s?)

     

    It never ceases to amaze me...these folks who want BRK to pay a dividend remind me of characters in old movies who would correct a grandfather clock to agree with their pocket watch!!
    If you didn't plan for your retirement properly, don't blame Mr. Buffett and then try to punish the rest of us shareowners with your eagerness to pay taxes! Cease & desist!
    14 Mar 2014, 08:55 PM Reply Like
  • dconner81
    , contributor
    Comments (3) | Send Message
     
    This is a growth company, that values its shareholders. So what if it has a cushion? It will continue to grow and maximize profits no matter the economic conditions. Sell if you want, than come back with a pocketful of regret in the years to come.
    15 Mar 2014, 01:42 AM Reply Like
  • BudH
    , contributor
    Comments (718) | Send Message
     
    If you need some income, sell a few shares. Transaction costs are nil if you have a decent broker. Long term capital gains are the lowest taxes you will pay.
    15 Mar 2014, 12:18 PM Reply Like
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