7 Modest Proposals for Warren Buffett

In his 2010 letter to Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) shareholders, Warren Buffett proudly crowed:

"[N]ot a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years. Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about $1 billion per month."

Then, in a drastic plot twist, Berkshire made this announcement earlier this week: "Our Board of Directors has authorized Berkshire Hathaway to repurchase Class A and Class B shares of Berkshire ..."

Does this answer the age-old question of whether it's possible to teach an old dog new tricks? (rimshot!)

OK, so nobody's teaching Buffett anything new here since the repurchase of Berkshire shares fits perfectly with his career-long obsession with buying pieces -- or the whole shebang -- of great companies at attractive prices. But this is still a departure from what Buffett has done in the past, so it got me thinking: What other new leaves might the venerable Buffett turn over at the spry age of 81?

1. Pay a dividend
This seems like a reasonable question to ask since the annual letter tidbit mentioned both dividends and share buybacks. He's done one -- could the other be on the horizon?

Unfortunately, the answer is "doubtful." It's not that Buffett isn't a fan of dividends in general. You have to go all the way down to Verisk Analytics -- a $245 million position -- to find a Berkshire holding that doesn't pay a dividend. Meanwhile, all of Berkshire's major positions -- representing tens of billions of dollars -- pay dividends. Many, including Coca-Cola, Procter & Gamble (NYSE: PG  ) , and Johnson & Johnson (NYSE: JNJ  ) , are part of Standard & Poor's venerated Dividend Aristocrats.

However, Buffett sees his job as capital allocator in chief, and as such he's dedicated to using Berkshire's cash to increase the returns for Berkshire shareholders. Buying back shares at the right price can do just that, but paying a dividend is akin to him saying "I give up."

2. Drink Pepsi
Buffett is a renowned Coke-drinker, which could make a lot of sense in light of Berkshire's $13.6 billion stake in Coca-Cola. But could he be persuaded to diversify his cola intake and sip the flagship product from rival PepsiCo (NYSE: PEP  ) ?

Though Buffett used to be a Pepsi drinker, I think that's a long shot. If switching favored cola brands was that easy, there would be little reason to be fanatical about Coke or Pepsi stock. However, Buffett did tell CNBC that he likes munching on snacks from Pepsi subsidiary Frito-Lay (he mentioned Fritos, Cheetos, potato chips, and Munchos), so perhaps he could consider adding Dividend Aristocrat PepsiCo to his portfolio?

3. Watch out Billboard
Buffett lit up living rooms earlier this year with a cameo in The Office. He's also appeared in Wall Street: Money Never Sleeps, I.O.U.S.A., and All My Children. He's quite the accomplished actor.

But unless he has an alter ego named Jimmy, I don't believe he's put out a music album yet. The man plays a mean ukulele, so I think it's high time he hit us with some tunage.

4. Smoke 'em if you got 'em
I noted above that Berkshire's portfolio holdings suggest that Buffett is a pretty big fan of dividend payers. And he's certainly a fan of companies with great brands and superior competitive advantage. So it may seem strange that Buffett doesn't own two companies with great dividends and one of the strongest global brands. I'm talking about Altria (NYSE: MO  ) and Philip Morris International (NYSE: PM  ) , owners of the Marlboro cigarette brand.

Personally, I made the decision to sell my stake in Philip Morris International because my conscience couldn't handle owning a cigarette manufacturer. While Buffett's had the "swell guy" image through most of his career, he hasn't always been swayed by those kinds of considerations and has come under fire for that reason in the past.

Of course, Berkshire's avoidance of cigarette stocks could be more than a moral thing. If Buffett views the regulatory risks facing these companies as unacceptably high, the addictive nature of the product and Marlboro's brand power may not be enough to influence him.

5. Warren the health nut
Dude, Warren, we Berkshire shareholders love having you at the helm and don't want to see you going anywhere. I can't say that I'm terribly encouraged by the fact that all I hear about your eating habits is your love of cheeseburgers, Coke, and snack foods.

My suggestion? Go vegan, get on a crossfit regimen, and stay your healthy, vibrant self for another 81 years (a guy can dream, right?). Too much, too soon? How about alternating Diet Coke with good ol' water (Dasani is a Coke brand) and munching the healthier options from Frito-Lay like Baked Lays, Baked Cheetos, and Stacy's Pita Chips.

6. Give us the keys to the kingdom
The share buyback announcement may give us the best glimpse yet into just how much Buffett thinks Berkshire is worth -- at least, that it's well worth buying the stock at up to and including 1.1 times book value. But we've never gotten Buffett to give a really specific breakdown of exactly how he thinks about the value of Berkshire. For investing and valuation nerds like me, a peek behind the curtain would be like comic book fans getting to try on Superman's cape.

7. Take down the World Series
No, not baseball, though I'm loath to put anything out of Buffett's reach. However, the man is a bridge whiz. Bridge doesn't get televised on ESPN, but the World Series of Poker does. Anybody doubt that Buffett could make a serious run at the main event?

Will he?
If you want to keep an eye on whether Buffett -- who I'm sure reads my columns -- takes up any of these suggestions, go ahead and add Berkshire Hathaway to your Foolish watchlist. If you don't have a watchlist yet, feel free to get one started for free by clicking here.

In the meantime, head down to the comments section and share your suggestions for the good Mr. Buffett.

The Motley Fool owns shares of Johnson & Johnson, Coca-Cola, Berkshire Hathaway, Altria Group, PepsiCo, and Philip Morris International. Motley Fool newsletter services have recommended buying shares of PepsiCo, Berkshire Hathaway, Philip Morris International, Johnson & Johnson, Procter & Gamble, and Coca-Cola. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Fool contributor Matt Koppenheffer owns shares of Berkshire Hathaway and Johnson & Johnson, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (4) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 01, 2011, at 8:39 AM, jerryz11 wrote:

    Why Pepsi? It has great and resilient businesses, but Nooyi has had several fumbles since becoming CEO, including repackaging of beverages and dropping all TV ads for their products. These are horrible unforced errors. Pepsi has survived her leadership so far simply because of the resiliency of its underlying businesses. It often reminds me of Peter Lynch/Buffett's comment that great businesses are those that even an idiot can run because sooner or later an idiot will. I'm not implying any CEO is an idiot. But CEOs of great businesses will do fine if they avoid unforced errors. Muhtar Kent is a convincing leader. Among Pepsi's competitors, why not Nestle (NSRGY) which has the top notch management that is prudent and long-term focused. As an example, their investment in Alcon produced 15%+ IRR over 30 (?) years. To me, Nestle is a much better run company even though the business may be more competitive.

  • Report this Comment On October 01, 2011, at 9:09 PM, BuyloPESellHiPE wrote:

    I have some BRK.B and am thrilled that Mr. Buffett is buying back shares. This is better than dividends; especially because the stock re-purchase is because it is cheap and the market valuation is low. It would be concerning if the company bought back shares when prices were high, but that is not the case here.

  • Report this Comment On October 02, 2011, at 2:58 AM, dividendgrowth wrote:

    PEP is down for a reason: Indra Nooyi has seriously mismanaged commodity prices and paid too much for acquisitions.

    Therefore, she flunks the management test in Buffett's stock selection criteria.

  • Report this Comment On October 02, 2011, at 9:53 AM, SN3165 wrote:

    Here's an idea - don't invest in zombie banks... then back up the said zombie bank when they announce a new $5 debit fee...

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