One of the better developments in the investing world over the past several years has been the introduction of fractional shares. Instead of needing the full price of a stock to purchase a share, fractional shares allow investors to buy a portion, often for as little as $1.
Popularized by Robinhood Markets, fractional shares have removed a barrier to entry in investing. This was especially important for investors who wanted access to great companies trading well into the thousands, like Berkshire Hathaway (BRK.A -0.76%).
Trading at well over half a million dollars per share, purchasing a whole share of Berkshire Hathaway isn't feasible for most people. Luckily, that doesn't have to be the case. If you have $100 available to invest, look no further than the conglomerate of all conglomerates.
Berkshire Hathaway makes money in its sleep
While growth stocks may get a lot of attention in the stock market, dividend stocks can be just as lucrative. It's a way for investors to make guaranteed money by doing nothing but being patient.
Ironically enough, Berkshire Hathaway itself doesn't pay a dividend, but it's known for investing in companies that do. It has set up its stock portfolio to provide constant income regardless of its operations. Here's how much dividend income Berkshire receives quarterly from its top holdings:
| Company | Shares Berkshire Owns | Quarterly Dividend Income at Current Payout |
|---|---|---|
| Apple | 915,560,382 | $219,734,491 |
| Bank of America | 1,032,852,006 | $247,884,481 |
| American Express | 151,610,700 | $90,966,420 |
| Coca-Cola | 400,000,000 | $184,000,000 |
| Chevron Corporation | 123,120,120 | $185,911,381 |
Data source: Berkshire Hathaway's 13F filing on Aug. 14. Holdings as of June 30, 2023. Income rounded to the nearest dollar.
From just its top five holdings alone, Berkshire Hathaway earns over $3.7 billion in dividend income each year (over $928 million quarterly). In 2022, it made over $6.03 billion in dividend income. For perspective, that was more than the 2022 net income of companies like Walt Disney, Nike, and Netflix.
More importantly, Berkshire Hathaway's holdings generally increased their annual dividends, so its annual dividend income keeps growing. There was a $979 million increase from 2021 to 2022 alone.
The company can provide shareholder value without paying a dividend
Berkshire Hathaway has found itself with a good "problem." The company now has over $141 billion of cash on hand. You can never have too much cash per se, but you do have to consider the trade-off of holding cash versus putting it to work and trying to create more value.
The company paying a dividend seems out of the question. Less than 10 years ago, shareholders took a vote on whether to establish a dividend, and 97% voted no. I imagine that number hasn't changed drastically enough to warrant them suddenly switching a policy that's been in place since 1967.
Berkshire Hathaway can provide shareholder value aside from stock price gains through share buybacks. When a company buys back its shares, investors' earnings per share increase, ownership stakes increase, and investors are rewarded in a more tax-friendly way than with a dividend.
Berkshire Hathaway has bought back $5.8 billion worth of shares so far in 2023 through June. Here's how much it's spent on share buybacks in the past three years:
- 2022: $7.9 billion
- 2021: $27.1 billion
- 2020: $24.7 billion
A company committed to share buybacks (when it makes sense) should appeal to long-term investors because it also shows a commitment to returning value to investors. It also helps that the company's stock price routinely outperforms the S&P 500, making it a bonus of sorts.
Invest your $100 and trust the process
Led by Warren Buffett, Berkshire Hathaway has been one of the more lucrative investments in the stock market over the past few decades. Here's how a $100 investment in Berkshire Hathway and the S&P 500 would stack up today if you invested 30 years ago from the time of this writing.
Data by YCharts.
Even when looking at total returns, it doesn't compare to the growth of Berkshire Hathaway. Past results don't guarantee future performance, and at the age of 92, Buffett has more years behind him than in front of him, but Berkshire Hathaway remains a great long-term option and in great hands.
There are few companies I'd trust more with my $100.
