Berkshire faces the end of a high-yielding investment

One of The Oracle's crisis-era high-yield investments could soon end as a post-earnings rally for Dow Chemical (DOW +3.4%) brings the stock above $53.72 for the first time in nine years. Should the shares close above that price for 20 trading days in a 30-day window, Berkshire's (BRK.A, BRK.B) $3B preferred stake in Dow could be converted into common stock.

The preferred stock is expensive for Dow as it carries an 8.5% yield, meaning $255M in dividends annually paid to Berkshire. Of course a conversion would mean dilution, but "people have come to view the dilution from the preferreds as a manageable issue," says UBS's John Roberts, thanks to strong earnings and share repurchases.

Previously: Dow Chemical beats estimates amid sales gains across businesses

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Comments (8)
  • psychological-dividends
    , contributor
    Comments (820) | Send Message
    These were convertible preferred right?
    23 Jul 2014, 01:05 PM Reply Like
  • Esekla
    , contributor
    Comments (4666) | Send Message
    Back when Dow initiated a stock buyback, there was an SA article predicting exactly this endgame. SA editors would do well to find and reference it.
    23 Jul 2014, 01:08 PM Reply Like
  • thenoffya
    , contributor
    Comments (180) | Send Message
    Good news for BRK.... Warren Buffet will slowly sell the shares after conversion and will have an extra $3B or so to invest in the next crisis.
    23 Jul 2014, 01:17 PM Reply Like
  • Captain Pike
    , contributor
    Comments (890) | Send Message
    Old man Potter strikes again
    23 Jul 2014, 01:44 PM Reply Like
  • 1logicalthinker
    , contributor
    Comments (103) | Send Message
    That's Mr. Potter to you :)
    23 Jul 2014, 05:34 PM Reply Like
  • dectra
    , contributor
    Comments (649) | Send Message
    Come on Captain...don't be bitter that Buffet was able to make another dollar or two (billion). Last time I checked, he's giving almost all of it away. He has publicly stated that he's giving away about $37 billion dollars, which is about 85% of his wealth.


    Now if we could get a few folks to also give a buck or two, perhaps we could solve some of those social issues we all admit are an economic drag on the country....
    24 Jul 2014, 12:03 PM Reply Like
  • King Rat
    , contributor
    Comments (1742) | Send Message
    If the assumption is that "Buffett will hold DOW" then coattail riders will probably swarm in to the stock now ensuring conversion. Assuming BRK gets good capital gains from eventually selling DOW shares could mean even higher than 8.5% YOC in even a conservative new investment.
    23 Jul 2014, 03:19 PM Reply Like
  • psychological-dividends
    , contributor
    Comments (820) | Send Message
    These shares could eventually be traded for some business as well.
    23 Jul 2014, 04:25 PM Reply Like
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