Warren Buffett has long avoided paying a dividend on Berkshire Hathaway stock. But this could change.
For decades, many investors have called on Berkshire Hathaway (BRK.A 1.00%) (BRK.B 0.79%) to pay a dividend, but Warren Buffett has refused to authorize one.
Why doesn’t Berkshire pay a dividend? Will it ever?
Berkshire stock could pay a dividend if this 1 thing happens
The only time Berkshire ever paid a dividend was in 1967. The payout was $0.10 per share. At the time, Berkshire had only one share class. “It was a terrible mistake,” Buffet later conceded. That’s because if Berkshire had reinvested the capital instead of paying it out, it would be worth significantly more today. Since Buffett took over the company, shares have risen in value by an average of nearly 20% per year, roughly double the rate of the S&P 500.
This is the main reason Buffett hasn’t authorized another dividend: He believes investors are simply better off having him and his team invest the capital.
Repurchases are consistent with that philosophy. When Berkshire buys back shares, that increases the value of each share held by outside investors. And unlike some dividend income, repurchases have no tax implications.
Right now, Berkshire is sitting on one of its biggest cash piles in history. Last quarter, the company reported $189 billion in cash — a clear sign that Buffett and his team are having a difficult time finding bargains in today’s market. Buffett has turned to share repurchases to absorb some of this excess capital, buying back $9.3 billion in shares in 2023. But share repurchases will only be authorized if they create value for shareholders — that is, if the intrinsic value of the shares is above the market price.
This brings us to the only scenario in which Berkshire might ever pay a dividend: if the investment team finds no suitable investment options and Berkshire’s own stock is overvalued, ruling out share repurchases. To date, this combination has yet to happen, and Buffett has never revealed his intentions should this situation ever arise. But given his unwavering commitment to creating shareholder wealth — whatever the means — stranger things have happened.
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
