“It’s our job, though, to over time deliver significant growth, bumpy or not. After all, as stewards of your capital, Berkshire directors have opted to retain all earnings,” writes Warren Buffett in his 2016 Annual Report Chairman’s letter. In other words, Berkshire doesn’t pay a dividend. It retains all earnings to invest in its companies or to acquire new ones.
If you’re a Berkshire shareholder and need retirement income you need to rely on Berkshire’s capital gains to sell shares. I don’t like that and it’s not how Mr. Buffett operates. He loves cash and invests it wisely (most of the time). But is this the best way to treat long-time shareholders? I’m talking about the ones who could use some retirement income. Why not reward them with some dividends?
Another point I’ll make is that Berkshire owns Apple. You can just hear the chorus: “Well, if Buffett owns it then it must be good.” I don’t like that. It’s a “coast is clear” statement, when in reality if you look on page 114 of the latest letter, it’s a tiny position for Buffett. The indexing crowd’s position in Apple, in percentage terms, truly makes Buffett look like a minority shareholder. Yes, Buffett has increased his position in Apple from last year by a significant amount, but what else can he easily buy with $20 billion in cash? “Too big to succeed” comes to mind.
The indexing crowd’s position in Apple, in percentage terms, truly makes Buffett look like a minority shareholder.
Apple, by the way, is sitting on a quarter billion in cash and their tiny dividend is a joke. Does anyone believe they will invest that cash with the expertise of a Warren Buffett? Not if their newly constructed headquarters is a guide to their capital allocation skills.
There are times when paying dividends make sense. Contrary to what Buffett or Apple may believe, I have found that shareholders are pretty good at spending their own money. They don’t mind receiving a hefty dividend year after year. They could use some of those retained earnings.
Latest posts by E.J. Smith (see all)
- Your Retirement Life: Gone Fishin’ at Bud N’ Mary’s - December 14, 2018
- “E.J., Has Your Phone Been Ringing off the Hook?” - December 14, 2018
- Wealth Management Pitfall: ESG, Part II - December 13, 2018