Warren Buffett has been very strategic when it comes to issuing or repurchasing Berkshire Hathaway (BRK.A +2.74%)(BRK.B +2.53%) stock.
In 2010, for example, Berkshire issued billions of dollars in stock to fund the acquisition of railroad operator BNSF. It remains one of the only times Buffett decided to dilute shareholders. More recently, Berkshire has been buying back its own shares to the tune of billions of dollars each year. At times, the company has repurchased more than $7 billion in stock in a single quarter.
During the past year, Berkshire has repurchased roughly $9 billion of its own stock. There are several reasons the company will likely repurchase even more shares in 2024 and beyond.
NYSE: BRK.B
Key Data Points
Three reasons Berkshire will keep buying back more stock
Why is Berkshire repurchasing so much stock? Part of its motivation is that the company has too much cash. The company currently sits on a record cash pile of nearly $168 billion. If it remains invested, that cash earns a relatively paltry return for shareholders. Repurchasing stock allows the company to put that cash to work in something it knows and understands extremely well.
BRK.B Stock Buybacks (Quarterly) data by YCharts
The second reason Berkshire has been buying back stock -- and will likely continue to do so -- is that equity prices in general are relatively high. That's also likely the reason the company's cash balance is so high. There simply aren't many bargains left. The S&P 500, for example, currently has a price-to-earnings multiple of about 27.5, nearly 70% above its long-term average.
The final reason Berkshire will continue to repurchase shares is that its own stock isn't that expensive. It currently trades at a price-to-book ratio of 1.53, right in line with its long-term average. The company is sitting on huge sums of cash, and its own stock is a relative bargain compared to the market, so why not repurchase shares? That's exactly what the company has been doing; don't expect it to stop anytime soon.
