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Berkshire Hathaway
Get a BRK Dividend

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By mungofitch
June 23, 2009

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For those who like Berkshire but want a dividend, many unkind words have been said over the years. (I think they are both reasonable goals, just not from the same security). So, herewith an alternative.

Why not just buy a bunch of the stocks that Berkshire owns which happen to be paying good dividends right now? The stock picks of Mr. Buffett and Mr. Simpson et al are not perfect, but I think simply stealing their picks works considerably better than a dart board at finding good solid firms.

I thought a 4%/year current dividend yield would be a nice target. I took all the big Berkshire holdings which are currently yielding over 3%, and reweighted them so you have more of the higher yielders, and then fiddled it a bit to cap the largest holdings, and to force GE and WFC into the list.

[See Post for Table Data]

This portfolio has a total yield of 4.00% right now. It's a nice round 20 stocks, no single stock accounts for more than 7.5% of the  portfolio, and the biggest holding is less than twice the size of the smallest.

As for that 4%....I think there is a good chance that Wells and GE may reinstate  their dividends, at or close to the old rates. If they merely raise them half way to the old levels, the yield on this portfolio would rise to 4.37%. That's why WFC is in the list even though the yield is low right now--- if they reinstate the dividend, as I expect them to do within a couple of years, the old dividend on the current price is a yield of 5.96%. As for GE, I think there is a small chance it will blow up and a huge chance it will prosper immensely. The joys of leverage! If they prosper, the price and the dividend will both rise a lot.

Counteracting this yield up-side is the fact I expect broad US dividends may fall for a few years and may stay lower for quite a while, though  probably not much worse than 1/3 lower than they are now. Since this is a broad portfolio, I would be prepared for cuts in the yield along the same lines, perhaps as low as 2.5% for a while. This is a high quality crowd, so I expect the dividend cuts to be more mild than for the average company, meaning that's a worst case. Here are some of my recent thoughts on broad-market US dividends.

Bottom line, this is a bunch of good firms giving a good yield, and I think they make a fairly safe and sensible long run equity portfolio. It's probably good for a very long hold. I would not rebalance it, since the long run prospects of some of the firms (like Wells) are hugely better than for some of the others (like Gannett). So, it's best to let the winners run and run in this case, letting the really great firms eventually come to dominate the portfolio even if some  things are temporarily overvalued and over-represented occasionally.

Jim