Why You Should Own Berkshire But Buy 5% Yielding Allianz Today
Summary
- Berkshire is one of the greatest companies in history, delivering almost 21% annual returns for 56 years. In the last 36 years, it's delivered 74X inflation-adjusted returns.
- In the future, analysts expect about 11% returns from BRK, 1% more than the S&P 500, courtesy of its incredible portfolio, cash generation, and infrastructure investment opportunities.
- However, when it comes to safety and quality, yield, valuation, and long-term return potential, Allianz is the superior investment today.
- Rating agencies consider ALIZY the world's best insurance company, with legendary risk management so strong it hasn't missed a dividend payment in 132 years.
- Most investors would do well owning both BRK and ALIZY in their diversified and prudently risk-managed portfolios. However, today ALIZY offers 2X the 5-year consensus return potential of BRK and is the far better buy.
- Looking for a portfolio of ideas like this one? Members of The Dividend Kings get exclusive access to our model portfolio. Learn More »
tiero/iStock via Getty Images
Berkshire Hathaway (NYSE:BRK.B) (NYSE:BRK.A) has become a legendary company run by the greatest long-term investor of all time.
Even income investors who love dividends have made an exception for this blue-chip, and for understandable reasons.
- 20.5% annual returns for 56 years
Even in more modern times, when Berkshire's growth has understandably grown more slowly, Buffett's empire has delivered incredible results.
BRK Total Returns Since 1986
Source: Portfolio Visualizer Premium
Over the last 36 years, the S&P has been on fire, driven by a powerful combo of falling interest rates and a red hot tech sector.
Yet, Berkshire has managed to outperform the market by 5% annually, delivering 195X returns.
Source: Portfolio Visualizer Premium
Adjusted for inflation BRK's 74X returns have beaten the S&P by almost 5X.
Source: Portfolio Visualizer Premium
The average rolling return at BRK is far superior to the market's and it's never experienced a lost decade like the S&P 500 has.
And the good news is that analysts expect Buffett's empire to keep on generating strong, market-beating returns in the coming years and decades.
But prudent investing isn't just about buying wonderful companies at fair prices and holding for the long-term.
It's also about balancing our limited savings with opportunity costs.
So let me show you the five reasons why Berkshire is a classic "buy and hold forever" blue-chip that most people would do very well to own in their portfolios.
But I also want to point out the reasons why 5% yielding Allianz (OTCPK:ALIZY) (OTCPK:ALIZF) is a far better buy today for most income investors.
Or to put it another way, let me show you why you should own Berkshire, but buy Allianz today.
Reason One: Safety And Quality, Winner Allianz
There are many ways to measure safety and quality and I factor in pretty much all of them.
The Dividend Kings' overall quality scores are based on a 248-point model that includes:
Dividend safety
Balance sheet strength
Credit ratings
Credit default swap medium-term bankruptcy risk data
Short and long-term bankruptcy risk
Accounting and corporate fraud risk
Profitability and business model
Growth consensus estimates
Management growth guidance
Historical earnings growth rates
Historical cash flow growth rates
Historical dividend growth rates
Historical sales growth rates
Cost of capital
- GF Scores
Long-term risk-management scores from MSCI, Morningstar, FactSet, S&P, Reuters'/Refinitiv, and Just Capital
Management quality
Dividend friendly corporate culture/income dependability
Long-term total returns (a Ben Graham sign of quality)
Analyst consensus long-term return potential
In fact, it includes over 1,000 fundamental metrics including the 12 rating agencies we use to assess fundamental risk.
- credit and risk management ratings make up 41% of the DK safety and quality model
- dividend/balance sheet/risk ratings make up 82% of the DK safety and quality model
How do we know that our safety and quality model work well?
During the two worst recessions in 75 years, our safety model 87% of blue-chip dividend cuts, the ultimate baptism by fire for any dividend safety model.
And then there's the confirmation that our quality ratings are very accurate.
DK Zen Phoenix: Superior Fundamentals Lead To Superior Long-Term Results
| Metric | US Stocks | 191 Real Money DK Phoenix Recs |
| Great Recession Dividend Growth | -25% | 0% |
| Pandemic Dividend Growth | -1% | 6% |
| Positive Total Returns Over The Last 10 Years | 42% | 99.5% (Greatest Investors In History 60% to 80% Over Time) |
| Lost Money/Went Bankrupt Over The Last 10 Years | 47% | 0.5% |
| Outperformed Market Over The Last Decade (290%) | 36% | 46% |
| Bankruptcies Over The Last 10 Years | 11% | 0% |
| Permanent 70+% Catastrophic Decline Since 1980 | 44% | 0.5% |
| 100+% Total Return Over The Past 10 Years | NA | 87% |
| 200+% Total Return Over The Past 10 Years | NA | 66% |
| 300+% Total Return Over The Past 10 Years | NA | 44% |
| 400+% Total Return Over The Past 10 Years | NA | 35% |
| 500+% Total Return Over The Past 10 Years | NA | 27% |
| 600+% Total Return Over The Past 10 Years | NA | 23% |
| 700+% Total Return Over The Past 10 Years | NA | 20% |
| 800+% Total Return Over The Past 10 Years | NA | 18% |
| 900+% Total Return Over The Past 10 Years | NA | 18% |
| 1000+% Total Return Over The Past 10 Years | NA | 16% |
| Sources: Morningstar, JPMorgan, Seeking Alpha |
Basically, historical market data confirms that the DK safety and quality model is comprehensive and accurate.
How does Berkshire score on our comprehensive safety and quality models?
BRK Balance Sheet Safety
| Rating | Dividend Kings Safety Score (161 Point Safety Model) | Approximate Dividend Cut Risk (Average Recession) | Approximate Dividend Cut Risk In Pandemic Level Recession |
| 1 - unsafe | 0% to 20% | over 4% | 16+% |
| 2- below average | 21% to 40% | over 2% | 8% to 16% |
| 3 - average | 41% to 60% | 2% | 4% to 8% |
| 4 - safe | 61% to 80% | 1% | 2% to 4% |
| 5- very safe | 81% to 100% | 0.5% | 1% to 2% |
| BRK.B | 92% | NA | NA |
| Risk Rating | Medium-Risk (47h industry percentile risk-management consensus) | AA Stable outlook credit rating 0.51% 30-year bankruptcy risk | 20% OR LESS Max Risk Cap Recommendation |
Long-Term Dependability
| Company | DK Long-Term Dependability Score | Interpretation | Points |
| Non-Dependable Companies | 21% or below | Poor Dependability | 1 |
| Low Dependability Companies | 22% to 60% | Below-Average Dependability | 2 |
| S&P 500/Industry Average | 61% (61% to 70% range) | Average Dependability | 3 |
| Above-Average | 71% to 80% | Very Dependable | 4 |
| Very Good | 81% or higher | Exceptional Dependability | 5 |
| BRK.B | 66% | Average Dependability | 3 |
Overall Quality
| BRK.B | Final Score | Rating |
| Safety | 92% | 5/5 very safe |
| Business Model | 80% | 3/3 wide moat, stable |
| Dependability | 66% | 3/5 average |
| Total | 80% | 11/13 SWAN |
| Risk Rating | 2/3 Medium Risk | |
| 10% OR LESS Max Risk Cap Rec | 15% Margin of Safety For A Potentially Good Buy |
BRK is one of the world's greatest companies.
In fact, BRK is in the 54th percentile of all companies on the Dividend Kings Master list. That might not sound impressive but take a look at that list!
The DK 500 Master List includes the some of the world's highest quality companies including:
All dividend champions
All dividend aristocrats
All dividend kings
All global aristocrats (such as BTI, ENB, and NVS)
All 13/13 Ultra Swans (as close to perfect quality as exists on Wall Street)
- 49 of the world's best growth stocks
But as great as BRK is it pales in comparison to the glorious quality of Allianz.
ALIZY Dividend Safety
| Rating | Dividend Kings Safety Score (151 Point Safety Model) | Approximate Dividend Cut Risk (Average Recession) | Approximate Dividend Cut Risk In Pandemic Level Recession |
| 1 - unsafe | 0% to 20% | over 4% | 16+% |
| 2- below average | 21% to 40% | over 2% | 8% to 16% |
| 3 - average | 41% to 60% | 2% | 4% to 8% |
| 4 - safe | 61% to 80% | 1% | 2% to 4% |
| 5- very safe | 81% to 100% | 0.5% | 1% to 2% |
| ALIZY | 97% | 0.5% | 1.20% |
| Risk Rating | Low Risk (87th industry percentile consensus) | AA stable outlook credit rating 0.51% 30-year bankruptcy risk | 15% OR LESS Max Risk Cap Recommendation |
Long-Term Dependability
| Company | DK Long-Term Dependability Score | Interpretation | Points |
| Non-Dependable Companies | 21% or below | Poor Dependability | 1 |
| Low Dependability Companies | 22% to 60% | Below-Average Dependability | 2 |
| S&P 500/Industry Average | 61% (58% to 70% range) | Average Dependability | 3 |
| Above-Average | 71% to 80% | Very Dependable | 4 |
| Very Good | 81% or higher | Exceptional Dependability | 5 |
| ALIZY | 100% | Exceptional Dependability | 5 |
Overall Quality
| ALIZY | Final Score | Rating |
| Safety | 97% | 5/5 very safe |
| Business Model | 60% | 2/3 above-average |
| Dependability | 100% | 5/5 exceptional |
| Total | 96% | 12/13 Super SWAN |
| Risk Rating | 3/3 Low Risk | |
| 15% OR LESS Max Risk Cap Rec | 10% Margin of Safety For A Potentially Good Buy |
ALIZY is in the 96th percentile of the world's best companies.
And don't just take my word for it.
The rating agencies consider Allianz to be the world's best-run and highest quality insurance company.
Allianz Credit Ratings
| Rating Agency | Credit Rating | 30-Year Default/Bankruptcy Risk | Chance of Losing 100% Of Your Investment 1 In |
| S&P | AA stable | 0.51% | 196.1 |
| Fitch | AA- stable | 0.55% | 181.8 |
| Moody's | Aa3 (AA- equivalent) Stable | 0.55% | 181.8 |
| AM Best | A+ stable | 0.60% | 166.7 |
| Consensus | AA- stable | 0.55% | 181.0 |
(Sources: S&P, Fitch, Moody's, AM Best)
Allianz is the highest-rated private insurance company in the world.
A 1 in 181 chance of losing all your money in the next 30 years.
BRK Credit Ratings
| Rating Agency | Credit Rating | 30-Year Default/Bankruptcy Risk | Chance of Losing 100% Of Your Investment 1 In |
| S&P | AA Stable Outlook | 0.51% | 196.1 |
| Fitch | AA- Stable Outlook | 0.55% | 181.8 |
| Moody's | Aa2 (AA equivalent) Stable | 0.51% | 196.1 |
| Consensus | AA Stable Outlook | 0.52% | 191.1 |
(Sources: S&P, Fitch, Moody's)
That's not to say that BRK is a riskier company, they are both basically very close to risk-free long-term investments.
- assuming you avoid becoming a forced seller for emotional or financial reasons
But here's something that income investors will appreciate about Allianz:
- built to last
- a focus on risk management above all else
- has survived and prospered through dozens of recessions, depressions, 2 World Wars, the cold war, commodity spikes, deflation and inflationary conditions, high and low-interest rates
- approximately 100 bear markets and corrections over 132 years
- has never missed a dividend payment since 1890
Allianz is so dependable that it hasn't missed a dividend payment in 132 years.
- not even during WWI or WWII
- if ALIZY ever fails to pay its dividend the world is likely over and we're too dead to care about our portfolios
Reason Two: Growth Outlook, Winner Berkshire
Berkshire's Historical Growth Rates
BRK has grown at between 6% and 32% annually over the last 20 years, but over the past two decades, its overall growth rate was 10.9%.
Guess what analysts think it will be over the long-term? 10.9% CAGR vs 8.5% for the S&P 500.
Why do analysts think BRK will grow about 25% faster than the market's earnings?
First, there's BRK's stock portfolio powered by BRK's incredible $150 billion in insurance float and $2 billion in monthly free cash flow.
- $86 billion in investable cash after BRK bought $41 billion worth of stocks in Q1
Let's repeat that, the greatest investor of all time put 1/3 of his investable cash to work in Q1 2022.
It was the 12th worst month for the Nasdaq in history, the worst April for the S&P since 1972 and the worst 4-month start to the year since 1939.
Charlie Bilello
Buffett is smart enough to know that timing the market isn't as important as putting money to work in great companies at great prices.
"It's better to be approximately right than precisely wrong." - Warren Buffett
Buffett began buying stocks hand over fist in October 2008.
Stocks went on to fall another 35% after that.
But compared to people who sat in cash the entire time?
Who sat in cash for years after the Great Recession ended?
Buffett was approximately right and they were precisely wrong.
In terms of organic growth, BRK has many wonderful growth levers to pull.
Most of this is from its utility businesses.
- S&P estimates that turning America's energy grid into a smart grid will cost approximately $13 trillion.
- The UN estimates that the world needs to spend $5 trillion to $7 trillion per year for the next 10 to 30 years to make the green energy transition.
Brookfield Asset Management (BAM) calls the green energy transition one of the single greatest investment opportunities in human history and BRK's strong position in utilities and railroads (which will be needed to power the infrastructure spending) give it a decades-long growth runway.
What Berkshire's Growth Could Mean For Long-Term Investors
10.9% growth is better than the market's but it's not going to light the world on fire. But that's not what long-term investors are looking for from BRK.
Inflation-Adjusted Consensus Return Potential: $1,000 Initial Investment
| Time Frame (Years) | 7.5% CAGR Inflation-Adjusted S&P Consensus | 8.6% Inflation-Adjusted Aristocrat Consensus | 8.4% CAGR Inflation-Adjusted BRK Consensus | Difference Between Inflation Adjusted BRK Consensus And S&P Consensus |
| 5 | $1,436.30 | $1,511.29 | $1,497.43 | $61.13 |
| 10 | $2,062.95 | $2,284.01 | $2,242.30 | $179.35 |
| 15 | $2,963.01 | $3,451.81 | $3,357.69 | $394.68 |
| 20 | $4,255.76 | $5,216.70 | $5,027.90 | $772.14 |
| 25 | $6,112.54 | $7,883.98 | $7,528.94 | $1,416.40 |
| 30 | $8,779.42 | $11,915.01 | $11,274.06 | $2,494.64 |
(Source: DK Research Terminal, FactSet)
| Time Frame (Years) | Ratio Aristocrats/S&P | Ratio Inflation-Adjusted BRK Consensus And S&P Consensus |
| 5 | 1.05 | 1.04 |
| 10 | 1.11 | 1.09 |
| 15 | 1.16 | 1.13 |
| 20 | 1.23 | 1.18 |
| 25 | 1.29 | 1.23 |
| 30 | 1.36 | 1.28 |
(Source: DK Research Terminal, FactSet)
BRK is basically an index fund, one that has beaten the market for decades and is expected to keep doing so for decades to come.
What about Allianz which is an insurance company and asset manager and lacks Berkshire's obvious infrastructure growth catalyst?
| Investment Strategy | Yield | LT Consensus Growth | LT Consensus Total Return Potential | Long-Term Risk-Adjusted Expected Return | Long-Term Inflation And Risk-Adjusted Expected Returns | Years To Double Your Inflation & Risk-Adjusted Wealth | 10 Year Inflation And Risk-Adjusted Return |
| Safe Midstream | 5.2% | 6.0% | 11.2% | 7.8% | 5.3% | 13.5 | 1.68 |
| Allianz | 5.1% | 6.0% | 11.1% | 7.8% | 5.3% | 13.6 | 1.67 |
| Adam's Planned Correction Buys | 3.9% | 18.9% | 22.8% | 16.0% | 13.5% | 5.3 | 3.54 |
| 10-Year US Treasury | 3.0% | 0.0% | 3.0% | 2.1% | -0.4% | -175.2 | 0.96 |
| High-Yield | 2.9% | 10.3% | 13.2% | 9.2% | 6.8% | 10.7 | 1.92 |
| REITs | 2.9% | 6.5% | 9.4% | 6.6% | 4.1% | 17.6 | 1.49 |
(Source: Morningstar, FactSet, YCharts)
Management is guiding for 6% long-term earnings and dividend growth from Allianz while analysts expect 8.8% growth.
Using management's more conservative estimates, we can still see that ALIZY offers very attractive high-yield return potential.
- better than the S&P 500's 10.0%
- and matching the aristocrats 11.2% (but with more than 2X the very safe yield)
What does this mean for long-term return potential?
What Allianz's Growth Could Mean For Long-Term Investors
6% growth doesn't sound exciting until you realize you're getting paid 5.1% (after the tax credit) for owning the world's best insurance company.
Inflation-Adjusted Consensus Return Potential: $1,000 Initial Investment
| Time Frame (Years) | 7.5% CAGR Inflation-Adjusted S&P Consensus | 8.6% Inflation-Adjusted Aristocrat Consensus | 8.6% CAGR Inflation-Adjusted ALIZY Consensus | Difference Between Inflation Adjusted ALIZY Consensus And S&P Consensus |
| 5 | $1,436.30 | $1,511.29 | $1,511.29 | $75.00 |
| 10 | $2,062.95 | $2,284.01 | $2,284.01 | $221.06 |
| 15 | $2,963.01 | $3,451.81 | $3,451.81 | $488.80 |
| 20 | $4,255.76 | $5,216.70 | $5,216.70 | $960.94 |
| 25 | $6,112.54 | $7,883.98 | $7,883.98 | $1,771.44 |
| 30 | $8,779.42 | $11,915.01 | $11,915.01 | $3,135.59 |
(Source: DK Research Terminal, FactSet)
| Time Frame (Years) | Ratio Aristocrats/S&P | Ratio Inflation-Adjusted ALIZY Consensus And S&P Consensus |
| 5 | 1.05 | 1.05 |
| 10 | 1.11 | 1.11 |
| 15 | 1.16 | 1.16 |
| 20 | 1.23 | 1.23 |
| 25 | 1.29 | 1.29 |
| 30 | 1.36 | 1.36 |
(Source: DK Research Terminal, FactSet)
ALIZY is expected to modestly outperform BRK over time, delivering potentially 12X inflation-adjusted returns over the next 30 years.
Reason Three: Valuation, Winner Allianz
Allianz Fair Value
| Metric | Historical Fair Value Multiples (all-years) | 2021 | 2022 | 2023 | 2024 | 12-Month Forward Fair Value |
| 13-Year Median Yield | 4.38% | $27.85 | $26.60 | $26.60 | $33.11 | |
| Earnings | 10.63 | $19.13 | $25.19 | $28.28 | $31.57 | |
| Average | $22.68 | $25.88 | $27.41 | $32.32 | $26.41 | |
| Current Price | $22.62 | |||||
Discount To Fair Value | 0.29% | 12.59% | 17.48% | 30.01% | 14.34% | |
Upside To Fair Value (NOT Including Dividends) | 0.29% | 14.40% | 21.18% | 42.88% | 16.75% (22% including dividend) | |
| 2022 EPS | 2023 EPS | 2022 Weighted EPS | 2023 Weighted EPS | 12-Month Forward EPS | 12-Month Average Fair Value Forward PE | Current Forward PE |
| $2.37 | $2.66 | $1.55 | $0.92 | $2.47 | 10.7 | 9.2 |
ALIZY is historically worth about 10.7X earnings and today trades at just 9.2X.
Analyst Median 12-Month Price Target | Morningstar Fair Value Estimate |
| $27.40 (10.3 PE) | $24.90 (10.1 PE) |
Discount To Price Target (Not A Fair Value Estimate) | Discount To Fair Value |
| 17.45% | 9.16% |
Upside To Price Target (Not Including Dividend) | Upside To Fair Value (Not Including Dividend) |
| 21.13% | 10.08% |
12-Month Median Total Return Price (Including Dividend) | Fair Value + 12-Month Dividend |
| $28.57 | $26.07 |
Discount To Total Price Target (Not A Fair Value Estimate) | Discount To Fair Value + 12-Month Dividend |
| 20.81% | 13.22% |
Upside To Price Target (Including Dividend) | Upside To Fair Value + Dividend |
| 26.28% | 15.23% |
Analysts expect ALIZY to deliver 26% total returns in the next year and that's justified by its fundamentals.
What about BRK?
Berkshire Fair Value
| Metric | Historical Fair Value Multiples (13-Years) | 2021 | 2022 | 2023 | 2024 | 12-Month Forward Fair Value |
| Earnings | 22.87 | $277.18 | $273.98 | $285.88 | $377.58 | |
| Average | $277.18 | $273.98 | $285.88 | $377.58 | $278.10 | |
| Current Price | $320.30 | |||||
Discount To Fair Value | -15.55% | -16.91% | -12.04% | 15.17% | -15.17% | |
| Upside To Fair Value | -13.46% | -14.46% | -10.75% | 17.88% | -13.18% | |
| 2022 EPS | 2023 EPS | 2022 Weighted EPS | 2023 Weighted EPS | 12-Month Forward OCF | 12-Month Average Fair Value Forward PE | Current Forward PE |
| $11.98 | $12.50 | $7.83 | $4.33 | $12.16 | 22.9 | 26.3 |
BRK is historically modestly overvalued at 26.3X earnings compared to its market-determined fair value of about 23X.
Analyst Median 12-Month Price Target | Morningstar Fair Value Estimate |
| $365.84 (30.1 PE) | $367.00 (30.2 PE) |
Discount To Price Target (Not A Fair Value Estimate) | Discount To Fair Value |
| 12.46% | 12.74% |
Upside To Price Target | Upside To Fair Value |
| 14.24% | 14.60% |
Analysts are still bullish on BRK expecting it will trade at 30X earnings within a year, which is Morningstar's estimate of fair value.
91% Statistical Probability BRK Is Worth Between 22 and 23.5X Earnings
| Time Frame (Years) | Average PE |
| 20 | 22.53 |
| 19 | 22.53 |
| 18 | 22.2 |
| 17 | 22.48 |
| 16 | 22.74 |
| 15 | 22.43 |
| 14 | 22.76 |
| 13 | 22.76 |
| 12 | 22.11 |
| 11 | 22.42 |
| 10 | 22.87 |
| 9 | 23.38 |
| 8 | 22.56 |
| 7 | 23.11 |
| 6 | 23.26 |
| 5 | 23.99 |
| 4 | 24.37 |
| 3 | 23.36 |
| 2 | 24.37 |
| 1 | 24.98 |
| Average | 23.06 |
| Median | 22.76 |
| Harmonic Average | 23.04 |
(Source: FAST Graphs, FactSet)
BRK might every well trade at 30X earnings at some point but as you can see, to call that "fair value" is rather speculative given its 20 years of historical market-determined fair values.
Reason Four: Medium-Term Total Return Potential, Winner Allianz
Investors don't have to wait for decades for Allianz to deliver slightly superior returns compared to BRK.
They likely only have to wait a few years.
ALIZY 2024 Consensus Total Return Potential
(Source: FAST Graphs, FactSet)
If ALIZY grows as analysts expect by 2024, it could deliver 70% total returns, or 22% annually.
- Buffett-like returns from an anti-bubble blue-chip bargain hiding in plain sight
ALIZY 2027 Consensus Total Return Potential
(Source: FAST Graphs, FactSet)
Over the next five years, analysts think ALIZY could deliver 15% annual returns.
- about 4X more than the S&P 500
- about 2X more than BRK
BRK 2024 Consensus Total Return Potential
(Source: FAST Graphs, FactSet)
If BRK grows as analysts expect by 2024, it could deliver 18% total returns, or 7% annually.
- about 50% less than ALIZY
BRK 2027 Consensus Total Return Potential
(Source: FAST Graphs, FactSet)
BRK's 5-year consensus return potential is 9% per year, or 62% total returns.
- about 50% better than the S&P 500
- but 50% less than ALIZY
ALIZY Investment Decision Score
DK (Source: DK Automated Investment Decision Tool)
Compared to the S&P 500 ALIZY is a potentially excellent investment idea.
- 20% better valuation
- more than 3X the yield (and a safer yield at that)
- 2X the risk-adjusted expected returns over the next five years
BRK Investment Decision Score
(Source: DK Automated Investment Decision Tool)
Compared to the market BRK is a slightly below-average investment opportunity right now.
- 3% worse valuation
- just 1% higher risk-adjusted expected return
Reason Five: Long-Term Risk Management, Winner Allianz
- See the risk section of this video to get an in-depth view (and link to two reports) of how DK and big institutions measure long-term risk management by companies
There are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.
Allianz's Risk Profile Summary
- Regulatory risk: mostly pertaining to tax rates and capital requirements
- Interest rate risk: portfolio yield affected by interest rates
- Equity risk: from the stocks they own in their portfolios
- Credit spread risk: bond values are affected by credit market conditions
- Inflation risk: higher inflation hurts reinsurance profits
- Currency risk: ALIZY operates in over 70 countries (uses hedges to manage this)
- Underwriting risk: potentially larger than expected losses due to disasters and black swans like pandemics
- Credit risks: if counterparties fail
- Labor retention risk (tightest job market in over 50 years and finance is a high paying industry) - rising wage pressures around the world
- Accounting fraud risk: significantly less than 17.5% statistical chance of accounting fraud
BRK's Risk Profile Summary
Our uncertainty rating for Berkshire is medium....Berkshire has generally scored lower on governance issues because of the makeup of its board and board committees, the unequal voting structure of its shares, and the lack of engagement and opaqueness historically on governance issues.
Berkshire faces the risk that insurance claims exceed loss reserves or that material impairments affect its investment portfolio. Several of the firm's key businesses--insurance, energy generation and distribution, and rail transport--operate in industries that are subject to higher degrees of regulatory oversight, which could affect future business combinations, as well as the setting of rates charged to customers. Many of the company's noninsurance operations are exposed to the cyclicality of the economy, with results suffering during economic slowdowns.
Berkshire is exposed to foreign currency, equity price, and credit default risk through its various investments and operating companies. Its derivative contracts could affect the firm's earnings and capital position, especially during more volatile markets, as they are recorded at fair value and updated periodically to reflect any changes in value. These contracts started expiring in 2019 and will continue to do so until 2025.
Berkshire depends on two key employees--Warren Buffett and Charlie Munger--for almost all of its investment and capital-allocation decisions. With Buffett turning 92 in August 2022 and Munger turning 98 in January 2022, it is increasingly likely that our valuation horizon will exceed their life spans, with the quality of investment returns and capital allocation being affected." - Morningstar
How do both companies manage their complex risk profiles?
Allianz Long-Term Risk Management Consensus
| Rating Agency | Industry Percentile | Rating Agency Classification |
| MSCI 37 Metric Model | 100.0% | AAA Industry Leader, Stable Trend |
| Morningstar/Sustainalytics 20 Metric Model | 93.2% | 16.1/100 Low-Risk |
| Reuters'/Refinitiv 500+ Metric Model | 100.00% | Exceptional, #1 Industry Leader |
| S&P 1,000+ Metric Model | 93.0% | Exceptional- Stable Trend |
| FactSet | 50.0% | Average- Positive Trend |
| Morningstar Global Percentile | 88.44 | Very Good |
| Consensus | 87.4% | Very Good, Bordering On Excellent, Low-Risk, Stable Trend |
(Sources: MSCI, Morningstar, Reuters', S&P, FactSet Research)
Allianz Long-Term Risk Management Is The 20th Best In The Master List (96th Percentile)
Allianz's risk-management consensus is in the top 4% of the world's highest quality companies and similar to that of such other companies as
- Amgen (AMGN)
- Enbridge (ENB) - global aristocrat
- 3M (MMM) - dividend king
- Bank of Nova Scotia (BNS)
- Texas Instruments (TXN)
- Lockheed Martin (LMT)
- Colgate-Palmolive (CL) - dividend king
- Microsoft (MSFT)
- Adobe (ADBE)
Berkshire Long-Term Risk Management Consensus
| Rating Agency | Industry Percentile | Rating Agency Classification |
| MSCI 37 Metric Model | 19.0% | BB, Below-Average, Positive Trend |
| Morningstar/Sustainalytics 20 Metric Model | 90.9% | 22.5/100 Medium-Risk |
| Reuters'/Refinitiv 500+ Metric Model | 24.6% | Satisfactory |
| S&P 1,000+ Metric Model | 10.0% | Very Poor, Stable Trend |
| Just Capital 19 Metric Model | 45.0% | Average |
| FactSet | 50.0% | Average |
| Morningstar Global Percentile (All 15,000 Rated Companies) | 88.6% | Very Good |
| Just Capital Global Percentile (All 954 Rated US Companies) | 45.3% | Average |
| Consensus | 47% | Medium, Average Risk-Management, Stable Trend |
(Sources: MSCI, Morningstar, Reuters', S&P, FactSet Research)
Berkshire Long-Term Risk Management Is The 398th Best In The Master List (20th Percentile)
BRK's risk-management consensus is in the bottom 20% of the world's highest quality companies and similar to that of such other companies as:
- Genuine Parts Company (GPC) - dividend king
- Roper Technologies (ROP) - dividend aristocrat
- Broadcom (AVGO)
- Pfizer (PFE)
- Altria (MO) - dividend king
For context, here are how both companies compare on risk management to the Master List.
| Classification | Average Consensus LT Risk-Management Industry Percentile | Risk-Management Rating |
| S&P Global (SPGI) #1 Risk Management In The Master List | 94 | Exceptional |
| Allianz | 87 | Very Good, Bordering on Exceptional |
| Strong ESG Stocks | 78 | Good - Bordering On Very Good |
| Foreign Dividend Stocks | 75 | Good |
| Ultra SWANs | 71 | Good |
| Low Volatility Stocks | 68 | Above-Average |
| Dividend Aristocrats | 67 | Above-Average |
| Dividend Kings | 63 | Above-Average |
| Master List average | 62 | Above-Average |
| Hyper-Growth stocks | 61 | Above-Average |
| Monthly Dividend Stocks | 60 | Above-Average |
| Dividend Champions | 57 | Average |
| Berkshire | 47 | Average |
(Source: DK Research Terminal)
How We Monitor Allianz's Risk Profile
- 19 analysts
- 4 credit rating agencies
- 8 total risk rating agencies
- 27 experts who collectively know this business better than anyone other than management
- and the bond market for real-time fundamental risk analysis
How We Monitor Berkshire's Risk Profile
- 7 analysts
- 3 credit rating agencies
- 9 total risk rating agencies
- 16 experts who collectively know this business better than anyone other than management
- and the bond market for real-time fundamental risk analysis
"When the facts change, I change my mind. What do you do sir?" - John Maynard Keynes
There are no sacred cows at iREIT or Dividend Kings. Wherever the fundamentals lead we always follow. That's the essence of disciplined financial science, the math behind retiring rich and staying rich in retirement.
Bottom Line: Berkshire Is A Wonderful "Buy And Hold Forever" Blue-Chip But Allianz Is A Far Better Buy Today
Both Berkshire and Allianz are amazing companies and over the long-term both could make you rich.
| Company | Berkshire | Allianz | BRK Wins | ALIZY Wins |
| Yield | 0.0% | 5.1% | 1 | |
| LT Growth Consensus | 10.9% | 6.0% | 1 | |
| Total Return Potential | 10.9% | 11.1% | 1 | |
| Risk-Adjusted Expected Return | 7.6% | 7.8% | 1 | |
| Discount To Fair Value | -3% | -15% | 1 | |
| DK Rating | Hold | Good Buy | 1 | |
| Quality Score | 80% | 96% | 1 | |
| Safety Score | 92% | 97% | 1 | |
| Dependability Score | 66% | 100% | 1 | |
| Long-Term Risk-Management Industry Percentile | 47% | 87% | 1 | |
| Credit Rating | AA Stable | AA stable | 1 | 1 |
| 30-Year Bankruptcy Risk | 0.51% | 0.51% | 1 | 1 |
| Dividend Growth Streak (Years) | NA | 2 | 1 | |
| Return On Capital (12-Months) | NA | NA | 1 | 1 |
| Return On Capital Industry Percentile | NA | NA | 1 | 1 |
| Return On Capital (13-Year Median) | NA | NA | 1 | 1 |
| Return On Capital (5-Year trend) | NA | NA | 1 | 1 |
| Sum | 7 | 16 |
(Source: DK Research Terminal, FactSet)
But when it comes to key fundamentals such as safety and quality, yield, total return potential, and valuation, Allianz is the clear winner over Berkshire right now.
While no company is right for everyone, not even the mighty Berkshire, I think that two things are clear today.
- Most people would do well to own Berkshire in their diversified and prudently risk-managed portfolios
- Allianz is the far better buy today
This is the kind of careful analysis that smart long-term investors make when deciding which companies to buy and when.
Because if you focus on the five fundamentals that determine 97% of long-term investing success, you never have to pray for luck on Wall Street, you make your own.
- risk-management (asset allocation)
- safety and quality
- yield
- growth
- valuation
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This article was written by
Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.
The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).
I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.
My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.
With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.
Disclosure: I/we have a beneficial long position in the shares of ALIZY, BRK.B either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Dividend Kings owns ALIZY, and BRK.B in our portfolios.