Berkshire Hathaway (NYSE: BRK.A) (BRK.B 0.95%) is the quintessential value stock in almost every category. It has a diversified portfolio of controlled businesses, positions in equity securities, and an impeccable balance sheet. But Berkshire has never paid a dividend -- which is fairly unusual for a value-focused company.
Here's why Warren Buffett prefers buybacks over dividends, and why I think Berkshire's new CEO (as of Jan. 1, 2026), Greg Abel, may change that policy.
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Berkshire's relatively short history of buybacks
Between 1965 and 2024, Berkshire averaged a 19.9% compounded annual gain, compared to 10.4% for the S&P 500 with dividends reinvested. Most of those gains came from savvy stock purchases, acquisitions, and reinvesting in its controlled businesses -- not returning capital to shareholders.
However, Berkshire's Board of Directors formally authorized a share repurchase program in September 2011. This allowed the company to repurchase shares "at prices no higher than 10% over the then-current book value of the shares."
The threshold was later changed to a 20% premium. Then the rule was more or less eliminated in recent years, as Berkshire had 24 consecutive quarters of buying back stock even when its price-to-book was inflated. However, Berkshire hasn't made any buybacks since second-quarter 2024 -- a sign that management may not view the stock as a compelling bargain right now.
NYSE: BRK.B
Key Data Points
Capital allocation options
To understand why Buffett has long preferred to use excess capital to repurchase stock and not pay dividends, it's helpful to know the different ways companies can use capital.
Most companies start out by borrowing money because they have some really good ideas and need that capital to finance those ideas. Then as they become profitable, they may want to use those profits to act on even more ideas and grow the business further without taking on too much debt.
As companies mature, they may generate more capital than needed, so they elect to return some of that capital directly to shareholders. The two main ways to return capital are stock repurchases and dividends.
Stock buybacks reduce the outstanding share count, which increases earnings per share and makes the stock a better value over time. Buybacks are inherently a more bullish bet than dividends because dividends provide a one-off benefit, whereas buybacks have lasting effects and are a better use of capital as long as the stock price does well over time.
Apple and Visa use the vast majority of their capital return programs on buybacks. That strategy has been massively successful, given both companies' long-term appreciation in value.
In comparison, longtime Berkshire holding Coca-Cola uses most of its capital return program on dividends. It has a 63-year streak of raising its payout.
How a company allocates capital affects its investment thesis and shareholder expectations. If a company pours all its profits back into the business, it puts pressure on those ideas to produce results. However, if it pays a sizable and steadily growing dividend, investors probably won't expect as much earnings growth.
Shifting priorities
When Berkshire was smaller, it made more sense to have capital readily available to pounce on an investment opportunity. But Berkshire has been a net seller of stock in recent years. As of March 31, it had more cash, cash equivalents, and Treasury bills than the value of its entire public equity portfolio. Its insurance businesses, BNSF railroad, Berkshire Hathaway Energy, and its slew of manufacturing, service, and retail businesses are worth around double its public equity portfolio.
Today, Berkshire resembles a conglomerate more than an investment company. Buffett has repeatedly stated that it's much harder for Berkshire to buy stocks now than when it was smaller, because it takes so much to move the needle.
Berkshire sports a market cap of $1.11 trillion at the time of this writing. This means that if Berkshire bought an $11 billion stake in a stock and the position doubled, it would theoretically only affect Berkshire's market cap by 1%. So Berkshire is essentially limited to making massive stock purchases, like it successfully did with Apple, or simply growing its controlled businesses.
Greg Abel has done a masterful job expanding Berkshire Hathaway Energy and leading Berkshire's controlled businesses outside of insurance. Most of these businesses aren't high-octane growth companies. Rather, they are steady stalwarts that would likely pay dividends if they were independent. So if Abel continues to focus on controlled businesses when he's CEO, rather than buying pieces of public equities, it would make sense for Berkshire's capital return program to reflect that shift.
A dividend stock in the making
Given Berkshire's size and success with growing controlled asset operating earnings, it should expand its capital return program to include dividends. However, I would expect Berkshire to stage in a dividend by having a low yield for a while, and then building up the payout over time as its operating earnings grow.
If Berkshire paid a dividend, it would make the investment thesis more attractive to folks looking to generate passive income from growing businesses. Because Berkshire has so much cash on its balance sheet, it should be able to support a stable and growing payout without damaging its financial health.
