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Why Berkshire Hathaway Shouldn't Pay A Dividend: A Long Look Back At Berkshire
- I begin to explain in part one of this series, why, even as a dividend growth investor, I am happy to hold shares of Berkshire and believe the company shouldn't pay a dividend.
- This article goes step by step, year by year, through Berkshire's annual shareholder letters, looking specifically for information relevant to the company's dividend (or the lack there of).
- I highlight the major reasons why it seems as though Berkshire Hathaway doesn't pay its shareholders a dividend.
- I set the stage for the next part of this project, where I will examine whether or not several of Berkshire's recent capital allocation moves have effectively met the criteria Buffett claims as a goal, is currently underway.
The First Apples To Apples Comparison Of Berkshire And The S&P 500
- Berkshire's earnings have significantly outgrown the S&P 500 over the last several years.
- Unique comparison of historical look-through earnings of Berkshire to the S&P 500.
- Berkshire's non-insurance earnings are valued equally to the S&P 500, with the insurance businesses thrown in for free.
Tracking Warren Buffett's Berkshire Hathaway Portfolio - Q3 2014 Update
- Warren Buffett's US long stock portfolio increased marginally from $107.58B to $107.79B this quarter.
- Berkshire Hathaway's largest three holdings are at over half the entire portfolio.
- Berkshire Hathaway significantly increased Charter Communications, DIRECTV, and General Motors this quarter.
Q3 2014 Update To Berkshire's Intrinsic Value: Part 2
- Berkshire is trading at a 18% discount to the S&P 500 on a P/E basis.
- Berkshire's hidden earnings resulting from GAAP accounting can be calculated using their 13F.
- Valuing Berkshire using look-through earnings avoids the effect meaningless price fluctuations have on Berkshire's value when using the pillar approach.
Does Berkshire's Duracell Deal Mean That Buffett Thinks P&G Is Overvalued?
- I explain why, in my opinion, the swap of Procter & Gamble shares for Duracell points towards overvaluation.
- I examine PG's fundamentals and dividend sustainability.
- Don't fret - I still believe in PG over the long haul, but I do expect things to be a bit rough for the company until it finds growth.
Paying Under 2 Times EBITDA For An Industry Leader
- News broke on Nov. 13 that Berkshire Hathaway would be acquiring Duracell and some cash in exchange for an equity swap with Procter & Gamble.
- While Procter & Gamble has been focused on growth lately, Duracell likely provides Buffett the strong and stable cash flow he desires.
- To top things off, Buffett's deal to buy the battery maker is a steal once investors consider the cash and tax benefits of the transaction.
Buffett's Brilliant Duracell Deal: A Reprise Of Past Deals, A Comment On The Present Market, A Whisper About The Future
- The Duracell deal reprises Buffett/Berkshire deals with Phillips 66, Washington Post and White Mountains Insurance.
- The cookie cutter for these deals was a cash-rich spinoff yielding a bolt-on acquisition.
- The attractiveness in each case is reinforced greatly by the opportunity to get rid of a no longer wanted publicly-traded asset without paying heavy capital gains tax.
- Duracell may not have a brilliant future, but upon close examination the price is so right it doesn't matter.
- The Duracell over PG deal suggests a Buffett caution on high-priced "defensive" stocks and whispers a possible course of action for his large Coca-Cola position.
Warren Buffett Nabs Duracell From Procter & Gamble
- Berkshire Hathaway has agreed to acquire Duracell from Procter & Gamble for a net price of $2.9B.
- Berkshire will give $4.7B (52.8M shares) worth of P&G stock to Procter & Gamble.
- Procter & Gamble has agreed to “recapitalize” Duracell with $1.8B in cash.
- As of this writing, I just sold my entire position in Berkshire Hathaway.
- It was one of the first stocks I owned and I still believe it is a great company.
- However, striving for early retirement, I am investing for the sake of passive income. Since Berkshire does not pay one and maybe never will, I decided to sell it today.
- I reinvested the capital directly into three other companies. Two of them are in Mr. Buffett’s portfolio.
Q3 2014 Update To Berkshire's Intrinsic Value: Part 1
- Berkshire is still available at a 15-20% discount.
- Berkshire's Q3 book value is $96.38 (B share).
- Berkshire's intrinsic value is about $175-$180 (B share).
What Warren Buffett Doesn't Want You To Do With Berkshire Hathaway Stock
- Long-term options enable a risk-welcoming investor to heavily leverage his/her investment income.
- Minimal time value on options presents excellent value for effectively borrowing shares.
- Periodic irrational dips provide excellent opportunity for entry points.
Lasting Lessons From 'Berkshire Beyond Buffett,' With Recent Publication
- Professor Lawrence Cunningham’s Berkshire Beyond Buffett: The Enduring Value of Values was recently published by the Columbia Business School Press.
- The publication details aspects of Berkshire Hathaway, such as acquiring family-owned businesses with broad scope and non-negotiable offers, that could keep the company afloat after Buffett's departure.
- Berkshire Hathaway reported very strong results in August, showing prowess in the face of concern over its founder's health.
- We reiterate our positive stance on the conglomerate, looking to 2015 and beyond.
Berkshire Hathaway: 20%+ Undervalued? DCF Calculation
- The intrinsic value of BRK.B is calculated to be $166.94. This represents 22% upside from today's price.
- Zacks has recently upgraded Berkshire to 1 (Strong Buy) as analyst estimates have moved upwards.
- Berkshire is well diversified and is strongly equipped to handle adverse macroeconomic conditions.
- The company has returned an impressive 19.7% average growth in book value for the last 49 years.
Analyzing Berkshire Hathaway Using The 4 Filters Test
- Berkshire Hathaway passes all Four Filters.
- Berkshire Hathaway's structure is a major competitive advantage.
- The company will continue to thrive long after current management moves on due to the company's structure.
Why The 'Buffett Put' Provides Berkshire With Perpetual Positive Asymmetry Hidden In Plain Sight
- Two months ago I noticed that Berkshire was selling less than 5% above Buffett's buy threshold but failed to pull the trigger; at least a good friend profited.
- Not liking the market much, I see Berkshire as one of the few great investments at fair price, especially with the buyback program in place.
- Buffett's buyback point of 1.2 times BV suggests a fair value range of 1.2 to 1.5 times BV.
- The buyback policy gives an edge to short-term traders, but a much larger edge as an entry point for long-term investors.
- Comparison to the prices of listed options (with some strike price extrapolation) helps confirm the significant degree of that edge.
Should You Consider Adding To An Already Oversize Position In Berkshire?
- Traders advocate doing more of what works and less of what doesn't; does this maxim apply to value investors?
- Berkshire Hathaway has become in recent years an oversize part of my portfolio. Is there a rationale for adding to it?
- Bayes Theorem implies that affirmative new information should increase one's conviction (justifying increasingly large position size in a stock).
- I have owned and followed Berkshire for more than 25 years, in the process not only gathering information but also improving my ability to analyze that information.
- Berkshire's success is not so smooth as to raise doubt (like Madoff or LTCM), but is enough to confirm Berkshire as the real deal - a low-risk compounding machine.
Berkshire Hathaway: The Buy For When You Get An Itchy Trigger Finger
- All investment classes look overpriced.
- By rights, we should be patient.
- But if we can't be patient, buying Berkshire is the thing to do.
- Berkshire's scale and diversity prevent it from acting like a nimble market participant.
- Berkshire keeps tens of billions uninvested to support its liquidity policy.
- Berkshire's productive businesses still beat the S&P.
There are no Transcripts on BRK.B.
Sat, Nov. 22, 11:49 AM
- Starbucks (NASDAQ:SBUX) plans to introduce Powermat wireless charging stations at close to 200 stores in the San Francisco region.
- The Powermat cuts out cords in the charging process by using a process called inductively coupled power transfer.
- A broader roll-out of the technology by Starbucks is planned across the U.S. and Europe within a year.
- General Motors (NYSE:GM) is also an early adopter of the Powermat wireless charging system with integration in the 2015 Cadillac ATS. The automaker is an investor in Powermat through its nimble VC arm.
- Duracell sits right smack in the middle of the Powermat innovation as the company with the brand and manufacturing capabilities to aim high. The swap of the business from profit-focused Procter & Gamble (NYSE:PG) to strategic-minded Berkshire Hathaway (BRK.A, BRK.B) sets up well for investments in long-term growth, note analysts.
Fri, Nov. 14, 4:28 PM
- Berkshire Hathaway (BRK.A, BRK.B) increased its GM stake in Q3 by 21% in Q3 to 40M shares. (13F filing)
- Warren Buffett's conglomerate exited its Deere (NYSE:DE) position; it had a 4M-share stake in the tractor maker at the end of Q2.
- A 449K-share stake was talen in PBM services giant Express Scripts (NASDAQ:ESRX). Stakes in IBM, Wal-Mart, MasterCard, and Visa were moderately increased.
- GM +0.7% AH. DE -0.4%.
Thu, Nov. 13, 3:53 PM
- The master of using the tax code to his advantage, The Oracle has done it again with his deal to buy Duracell from Procter & Gamble. Berkshire Hathaway (BRK.A, BRK.B) is paying $4.7B for the business, but the currency will be its P&G stock with a cost basis of just $336M.
- Had Berkshire instead sold the shares, it would have faced a capital gains tax bill of more than $1B. P&G is also set to get a tax break with the sale because it's retiring stock using property that has appreciated in value.
- It's the third time this year Warren Buffett has swapped shares for businesses, thus cutting out the IRS.
- Previously: Berkshire Hathaway lands Duracell brand
Thu, Nov. 13, 7:42 AM
- Berkshire Hathaway (BRK.A, BRK.B) announces it bought the Duracell battery brand from Procter & Gamble (NYSE:PG).
- Duracell Company will be seeded with $1.7B in cash at the closing and P&G will retrieve shares of its stock held by Berkshire as part of the terms of the deal.
- The transaction is expected to close in the second half of 2015.
- Previously: Procter & Gamble to shed Duracell
- PG +0.4% premarket.
Mon, Nov. 10, 7:37 AM
- "You don't get bargains on things like that," said Warren Buffett five years ago after paying what seemed like a steep price of $26.5B in the BNSF buyout. Five years on, the statement seems like false modestly, as - with the onshore oil boom helping it along - BNSF has sent more than $15B in dividends to Berkshire Hathaway (BRK.A, BRK.B), according to Berkshire''s latest quarterly earnings.
- Even better, the railroad is on pace to return all of the cash spent by Buffett before year's end. Annual revenue at BNSF has risen 57% and earnings more than doubled to $3.8B since Berkshire's purchase.
- "He stole it," says Jeff Matthews. "He's got to feel really good that he bought it when he did, because it's a wonderful asset, and it's done nothing but get more valuable in the time that he's owned it."
- Comps? Union Pacific (NYSE:UNP) trades for about 12.6x pretax, pre-interest income. Were BNSF to sell for that kind of multiple today, Buffett's stake would be worth about $66.5B, more than double what he paid.
Thu, Nov. 6, 5:35 PM
Wed, Oct. 22, 5:57 PM
- Railroad stocks were hammered today after some executives threw cold water on the idea that the railroad industry is ripe for consolidation.
- Norfolk Southern (NYSE:NSC) CEO said during today's earnings conference call that he thinks a major merger would be “highly problematic,” since in the past they have led to "significant service problems for some period of time" and potential cost savings such as overlapping routes do not exist as much anymore.
- Yesterday, Canadian Pacific (NYSE:CP) CEO Hunter Harrison confirmed that talks with CSX fell apart after several meetings because they couldn't agree on key issues, and added that a deal with Kansas City Southern (NYSE:KSU) is unlikely because the stock is expensive.
- In today's trade: NSC -3%, CP -1.6%, CSX -0.6%, KSU -2.7%, UNP -1.8%, GWR -2.6%, CNI -0.9%, BRK.B -0.9%.
Mon, Oct. 20, 8:29 AM
- Lower by 0.1% in premarket action is Berkshire Hathaway (NYSE:BRK.B) alongside IBM's post-earnings slide. The House of Buffett is IBM's largest shareholder with more than 70M shares as of the latest regulatory filing, and with IBM off more than 8%, or $15 per share, it translates into a loss of more than $1B for Berkshire (market cap $340B).
Mon, Oct. 13, 5:07 AM
- Berkshire Hathaway (BRK.A, BRK.B) intends to license its name to estate agencies in Europe and Asia as part of its strategy to exploit Warren Buffett's widely respected reputation.
- "Berkshire Hathaway has brand equity around trust, stability and integrity," says consultant Oscar Yuan.
- Berkshire has this year stamped its name onto the Van Tuyl car dealership chain that it bought this month, as well as onto utility companies and U.S. estate agents in its portfolio.
Fri, Oct. 10, 3:18 PM
- A security breach may have compromised customer payment card information at 395 Dairy Queen locations across the country, says the company, a subsidiary of Berkshire Hathaway (BRK.A, BRK.B). It's the dreaded Backoff software, which has been targeting retailers for about a year now.
- Exposed were names, card numbers, and expiration dates. There's no indication PINs, social security numbers, or email addresses were stolen.
Tue, Oct. 7, 3:20 PM
- “It’s a 30-minute instrument if you’ve been wrong on interest rates and it’s a 30-year instrument if you’ve been right on interest rates," says Warren Buffett, scratching his head over why folks aren't lining up to get mortgages.
- "It's a good way to short the dollar, short interest rates. It is a no-brainer," he adds, admitting the home construction pickup has been slower than he expected.
- Berkshire Hathaway (BRK.A, BRK.B), of course, has units doing everything from building and selling houses, to manufacturing carpeting, paint, and bricks, and Buffett continues to expect a pickup in business. “[Slow household formation] doesn’t last long. Hormones kick in and in-laws get tiresome, too.”
Thu, Oct. 2, 9:27 AM
- We actually bought some stocks on the dip yesterday, says Warren Buffett (BRK.A, BRK.B), appearing on CNBC. More from The Oracle ...
- "I made a mistake on Tesco (OTCPK:TSCDF, OTCPK:TSCDY). That was a huge mistake by me."
- The new Coca-Cola (NYSE:KO) compensation plan makes "great sense." His involvement came only after being asked, and was not adversarial. "I feel as good about my Coke investment as I've ever felt."
- "It doesn't have anything to do with taxes," says Buffett, of the Burger King/Tim Horton's deal. He notes Tim Horton's earns twice as much money as BK, and the deal has to pass muster with Canadian regulators.
- Alibaba? "I don't think we've bought an IPO in over 50 years."
- Asked about today's announced purchase of a major auto dealer, Buffett says it's a play on the strength of the auto sector right now. "I fully expect we'll buy a lot more dealerships over time."
Thu, Oct. 2, 8:11 AM
- Van Tuyl Group is the country's largest privately-owned auto dealership group, and the 5th-ranked overall.
- After being folded into Berkshire Hathway (BRK.A, BRK.B), the company will be known as Berkshire Hathaway Automotive, and - no surprise - will continue to be led by its existing management team.
- Buffett: "The Van Tuyl Group fits perfectly into Berkshire Hathaway from both a financial and cultural viewpoint ... [It] enjoys excellent relations with the major auto manufacturers and delivers unusually high volumes at its 78 locations. This is just the beginning for Berkshire Hathaway Automotive."
- The deal is expected to be closed in Q1. Term were not disclosed.
- Press release
Thu, Sep. 25, 2:29 PM
- Berkshire Hathaway (BRK.A, BRK.B) and CenterPoint Energy (NYSE:CP) are among 10 companies that signed confidentiality agreements to explore bids for Energy Future's Oncor electricity distributor, Bloomberg reports.
- NextEra Energy (NYSE:NEE), which helped prompt the auction with a takeover bid this year valuing Oncor at more than $17.5B, also signed a non-disclosure agreement letting it conduct due diligence.
- The bankrupt Energy Future's profitable Oncor business operates the largest distribution and transmission business in Texas and delivers electricity to more than 3M homes and businesses.
Wed, Sep. 24, 3:31 PM
- "They took their bitterness out on AIG and wanted to make a big show," says former AIG CEO Bob Benmosche talking about last year's defections of execs to Berkshire Hathaway (BRK.A, BRK.B). "They went over there and, boy, are they really not showing us anything at all."
- Of the exiting rainmakers, Benmosche says they wanted to be left alone to run their own franchises at AIG. "The fact is that they disagreed with a very simple philosophy. We have to be one AIG.”
- After a one-year cool-off period, Berkshire has resumed hiring AIG managers. "The business that they’re picking off is unusually profitable,” says KBW's Meyer Shields. “It’s not hurting Berkshire at all on the underwriting side.”
- Previously: Berkshire makes another hire from AIG
Tue, Sep. 23, 2:49 PM
- Bidding to expand its specialty insurance business, Berkshire Hathaway (BRK.A, BRK.B) hires Brian O'Neill from AIG. It was in April 2013 when Berkshire poached four AIG execs - including P&C head Peter Eastwood - for its new operation.
- Berkshire quickly hired about 15 more from AIG, with "war" breaking out between the two companies. A truce - with Berkshire agreeing to halt the poaching for a year - was agreed to ... that was about one year ago to the day.
BRK.B vs. ETF Alternatives
Berkshire Hathaway Inc is a conglomerate holding company owning subsidiaries engaged in a number of business activities, including property and casualty insurance and reinsurance, utilities and energy, finance, manufacturing, service and retailing.
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