Why Warren Buffett's Berkshire Hathaway Won't Pay a Dividend in 2014

Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) has a number of things going for it if you're considering an investment in it, but dividend income certainly isn't one of them. Warren Buffett's company doesn't pay out a single dime to its investors in the form of dividends -- and 2014 isn't likely to change that trend.

This all comes as a bit of a surprise when you consider that of its top eight investments, all of them pay out a dividend, and in fact many of them are among the better-known favorites among dividend investors:

Source: Company SEC filings.

Two of Berkshire's most recent and notable investments -- IBM (NYSE: IBM  ) and ExxonMobil (NYSE: XOM  ) -- have two of the highest dividend yields on the list. Berkshire also holds the exclusive $5 billion stake in Bank of America (NYSE: BAC  ) preferred shares that carry an annual dividend of 6%. If you take those eight investments, plus the Bank of America position, Berkshire rakes in roughly $2 billion each year in the form of dividends from other companies.

As a result, many investors would like to know why Berkshire doesn't pay a dividend, and if it's poised to do so anytime in the future. Buffett addressed this very question in his most recent annual letter to shareholders:

A number of Berkshire shareholders -- including some of my good friends -- would like Berkshire to pay a cash dividend. It puzzles them that we relish the dividends we receive from most of the stocks that Berkshire owns, but pay out nothing ourselves.

Buffett went on to say that the value to shareholders increases if a company first considers reinvesting profits back into the business, and then thinks about possible acquisitions and finally share buybacks. After all three of those things have been exhausted, only then would Buffett advise a company to consider paying out a dividend. And Berkshire's actions in 2013 give us solid insight into what may happen to the dividend next year.

Specifically, Buffett says that "a company's management should first examine reinvestment possibilities offered by its current business -- projects to become more efficient, expand territorially, extend and improve product lines, or to otherwise widen the economic moat separating the company from its competitors."

When you consider that last year Berkshire had a record $12.1 billion in "fixed-asset investments and bolt-on acquisitions," and year to date it has $7.7 billion of cash dedicated to the purchase of property, plant, and equipment, relative to the $7.2 billion through the first nine months of last year, it doesn't look as if Berkshire has taken any steps away from its dedication to reinvest back into its business.

After extolling the value of reinvesting into a business, Buffett went on to say he thinks acquisitions unrelated to current businesses are the next best use of Berkshire's cash. "[O]ur test is simple," he said. "Do Charlie [Munger] and I think we can effect a transaction that is likely to leave our shareholders wealthier on a per-share basis than they were prior to the acquisition?"

Knowing that Buffett pulled out the "elephant gun" to acquire Heinz for $28 billion with private equity firm 3G Capital earlier this year, it's evident that Buffett and his managers are not only reinvesting back into the business, but also actively looking for companies to acquire.

As a final point, Buffett said that "disciplined repurchases are the surest way to use funds intelligently," and he concluded that the company would actively considering repurchasing stock if the price traded for less than 120% of its book value. Buffett was been active on both the reinvesting and acquisition fronts, but the same can't be said for share buybacks, as the most recent SEC filing states simply, "There were no share repurchases in the first nine months of 2013."

It's logical to think that since there haven't been any share repurchases, Buffett may be amenable to exploring a dividend. However, when you consider that through the first nine months of the year Berkshire has had cash flows from investing activities total $25.5 billion, versus $7.5 billion last year, it becomes evident that Buffett's philosophy on principally investing in his company first hasn't changed one bit, and the dividend yield of 0% isn't likely to change anytime soon either.

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  • Report this Comment On December 02, 2013, at 1:53 PM, prginww wrote:

    With Buffett's track record, if I were invested in BRK, I would have no problem with not receiving a dividend. He clearly knows how to invest the money better than I would.

  • Report this Comment On December 03, 2013, at 8:44 AM, prginww wrote:

    I think Buffet seems to be a good person, but I wish he would use his incredible influence to help save our planet and support workers in USA. Investing in fossil fuels is just adding to the destruction of our atmosphere and accelerating climate change. Investing in Wal-Mart supports approval for not giving the working person a livable wage.

    He could invest in other

    He could make a difference and still make money.

    I think he is unaware.

  • Report this Comment On December 03, 2013, at 5:41 PM, prginww wrote:

    Not surprising that 3 of his 8 top holdings needed "TARP MONEY" to stay afloat. Nothing like predictability. No wonder why obummer is his best friend.

  • Report this Comment On December 03, 2013, at 6:16 PM, prginww wrote:

    Interesting that the comments regarding what Buffet invests in are unhappy. Buffet is an investor that is the best at what he does over his lifetime. TARP money or not, fossil fuels or not. He just gives us the best investments and that's what investing is about...making money...

    WHen there is a better way, Buffet will be there...first

  • Report this Comment On December 03, 2013, at 6:30 PM, prginww wrote:

    I think we must conclude that Buffet is not playing a game that can help ordinary investors create a cash flow for retirement. If he was, BRK would be paying a generous dividend to investors. Instead, BRK is simply a shrine of some kind for Buffet and like-minded shareholders to worship, with any cash flow "reinvested" -- yeah, like what are you BRK investors suppose to do for food, rent, and the necessities of life while all your money is off playing games with billionaires (who will be glad to tell you they know better than you)? If BRK was to tank tomorrow, it would not affect Buffet one iota as far as his personal needs are concerned. Most everyone else on the planet is not so well positioned.

    The observation from 'oxbro' about TARP money is most revealing. I know that directly or indirectly this kind of crutch is NEVER going to be available to bail me out of bad financial situations.

    Yea! to free markets and capitalism, especially when you've got pals who are politically connected, helping you over any rough spots with taxpayer funds.

    To moriah88: Has it not occured to you that minimum-wage jobs fuel business profits and stock martket bubbles? Pay workers beans (for 30 years now and counting) and thus make them depend on the Government for things they would otherewise be able to buy for themselves. Then lobby to sidestep taxes, send your huge profits overseas, and stick the US middle class with most of the bill. No genius or greatness involved here, just greed.

  • Report this Comment On December 04, 2013, at 4:26 AM, prginww wrote:

    Read the letters to shareholders at Buffett explains how selling a bit of BRK stock every year is similiar to receiving a dividend and works out better for the shareholders.

    ( $2 biilion in dividends per year is $63 per second headed towards Omaha. That's cash flow ;) )

  • Report this Comment On December 04, 2013, at 9:21 AM, prginww wrote:

    This is to the 'unaware' comment above. In 2006 Warren Buffet, then the world's richest person, pledged billions of dollars of his personal wealth, along with Bill Gates, to the Gates Foundation which is now the largest charitable foundation in the world. Between Gates and Buffet it was the single largest charitable donation in history. The Gates foundation works around the world to reduce poverty, improve health care especially for children, increase food production and provide disaster relief, to name just a few of their initiatives. Maybe you should do some homework before you make comments like 'he could make a difference' or 'he is unaware'.

  • Report this Comment On December 06, 2013, at 4:05 PM, prginww wrote:


    "like what are you BRK investors suppose to do for food, rent, and the necessities of life while all your money is off playing games with billionaires"

    One should investing disposable income, not "the food, rent and the necessities of life" money because then the investor becomes just a gambler, hoping to increase his stake. The odds are always against the gambler.

  • Report this Comment On May 11, 2014, at 3:17 PM, prginww wrote:

    I think the IRS has coerced most other countries into reporting deposits/investments made by American investors. Are profits made in other countries now taxed twice? In the other country, and in the US?

    I agree with Buffett's strategy of long-term investing for several reasons:

    a. It shifts income to a lower tax bracket of "long term capital gains".

    b. It avoids the brokerage fees from frequent trading.

    c. It is easier to follow the facts and circumstances of a few stocks, instead of a great many, constantly traded stocks. Fewer headaches, less stress.

    I hope Buffett is ready for a meltdown of the US Dollar. His recent investment in Canadian Oil is a smart move, as the Canadian dollar is much stronger than the US dollar, as the Canadians live within their incomes, unlike the US.

    I'm buying Berkshire A or B soon.

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