Warren Buffett is a fan of buying dividend-paying stocks, but his Berkshire Hathaway company doesn’t pay dividends itself, despite having tens of billions in cash. Periodic dividends are a way to reward shareholders by distributing a portion of a company’s earnings, usually in the form of cash every quarter. Sometimes companies will even offer a small discount for reinvesting dividends. But the main reason Berkshire doesn’t pay a dividend is that the Oracle of Omaha is confident in its ability to deploy capital in more profitable ways. Even if Buffett doesn’t think he can effectively use his cash reserves, he will choose a buyback plan to return capital to shareholders rather than dividends. Buffett said in an interview with CNBC in 2018 that “dividends imply a promise that you will always pay dividends and not reduce the dividend” and that buying back Berkshire’s own stock is often more beneficial to shareholders. Of the two, “we’d probably be leaning toward buybacks,” he said. The 93-year-old investor also ruled out a one-off special dividend payment. The top holdings in Berkshire stock portfolios are almost exclusively dividend payers. Apple, which accounts for more than 40% of the portfolio, pays a 0.6% dividend yield. Bank of America, Berkshire’s second-largest holding, pays a dividend equivalent to a 2.5% yield. Coca-Cola pays a 3.1% dividend yield on long-term holdings. Chevron offers interest rates as high as 3.9%, while American Express pays 1.2%. Berkshire launched its buyback program in 2011 and has relied on buybacks amid a competitive trading environment and expensive stock market in recent years. With Buffett finding few outside acquisition opportunities, the group’s buyback spending in 2021 reached a record $27 billion. Even so, buyback activity has slowed over the past year. ‘A terrible mistake’ Buffett recently recalled the only time Berkshire paid a dividend: 10 cents a share in 1967, just two years after Buffett took over the bankrupt textile maker. “This was a terrible mistake,” Buffett said at the 2023 annual meeting, followed by a burst of laughter. “I always tell people I went to the men’s room and the directors voted in my absence. But that’s not the case. I admit, I was there.” In 2014, Berkshire voted to pay “Have Meaningful annual dividend”. The handful of Class A shareholders who own Berkshire’s original stock, which sold for hundreds of thousands of dollars each, voted against the move 89 to 1. Shareholders voted against it 47 to 1. “I think they want us to do whatever we think makes sense for all shareholders,” Buffett said in 2023. “Obviously, if we really think we can never be effective in the business To use the money wisely, we should get it out somehow.
