Buffett's Love of Dividends is a One-Way Street

Don't come knocking on Buffett's door for cash payouts - Berkshire Hathaway shareholders get rewarded in other ways. 

Jocelyn Jovène 22.05.2023
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Buffett in 2022

At the annual meeting of Berkshire Hathaway BRK.B, which took place earlier this month in Omaha, Nebraska, there was one question no one bothered to ask Warren Buffett any longer: Would the company, which is awash in cash, consider paying a dividend?

For 58 years this question, when raised, has received the same answer: No.

This time, the only moment Buffett mentioned the D-word was when, asked about Paramount (PARA), one of Berkshire’s stock holdings. He said: “It’s never good news when a company cuts its dividend dramatically.”

Buffett doesn’t like to pay dividends, but he loves receiving them.

Berkshire Hathaway in 2023 is expected to receive $5.7 billion in dividends from its $300 billion equity portfolio, the Wall Street Journal estimates.

Where the Cash Flow's Coming From

Most of the money ought come from its holdings in Apple (AAPL), Bank of America (BAC), Coca-Cola (KO), Kraft Heinz (KHC), Chevron (CVX) and American Express (AXP). Berkshire Hathaway happens to be one, if not, the largest shareholders of those companies.

This money stream comes on top of buybacks-- often massive ones-- by some of those same companies. Apple just authorized a US$90 billion share buyback program.

Berkshire itself has jumped at the opportunity of buying back its own shares when they are attractively valued. Last year, it spent US$8 billion in share buybacks, after spending US$27 billion in 2021 and US$25 billion in 2020.

Between that and the stock's astronomic long-term price return, Berkshire Hathaway’s shareholders certainly don't have many reasons to complain.

Under the stewardship of Buffett and longtime partner Charlie Munger, the company has been very astute at allocating capital.

Diverse Cash Flow Stocks

Through M&A transactions, Berkshire has been reinforcing its vast portfolio of businesses, spanning from energy, to insurance, retail and industries. Most of the businesses Berkshire controls are growing, show decent profit margins and return on capital.

In 2022, the company posted a profit margin close to 12% and generated a free cash-flow of US$22 billion. Its share price rose 3.3%, outperforming the S&P 500 index by 23 percentage points.

At the end of the first quarter of 2023, Berkshire’s operating profit was US$8 billion, on revenue of US$85.4 billion. Its free cash-flow was close to US$5 billion. Its share price has risen by about 7% this year - underperforming the market by two percentage points, but we all know Buffett is all about outperformance in the long term.

 

 

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
American Express Co214.86 USD1.88Rating
Apple Inc182.92 USD0.33Rating
Berkshire Hathaway Inc Class A621,684.68 USD0.76Rating
Chevron Corp154.90 USD-0.35Rating
The Kraft Heinz Co36.21 USD-0.51Rating

About Author

Jocelyn Jovène

Jocelyn Jovène  is Senior Financial Analyst and Senior Editor for Morningstar France.

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