The Dirty Word at Berkshire

Is Warren Buffett Preparing to ‘Fall on the Sword’ for His Successor?

There is a very dirty word over at Berkshire. It’s met with derision, contempt, mockery, and worse. The word I’m referring to is, of course, Dividend.

Over the decades, Buffett has been steadfast against paying out a dividend, and for good reason – just look at all of the value created for shareholders by retaining earnings and reinvesting those funds. Berkshire paid a dividend once in 1967, and Buffett has famously joked that he must have been in the bathroom when that decision was made.

Year after year at the annual shareholder meeting, there have been questions about Berkshire’s cash pile and when it would be time for a dividend. Year after year, Buffett and Munger have dismissed the notion as ridiculous. Looking back at the track record, they were, of course, correct, and patient shareholders have been greatly rewarded.

If you listen closely, though, Buffett has said a few times that if there was absolutely nothing Berkshire could do, they would have to consider a dividend and did leave the door open ever so slightly. He has said several times that Berkshire would consider paying a dividend if the company could not generate at least a dollar of market value for every dollar retained.

Over the years, Buffett has lamented that Berkshire’s universe of companies to acquire is shrinking the larger the conglomerate gets. It will take a massive acquisition to really move the needle at Berkshire.

This brings us to 2024. Buffett is now turning 94 in a few weeks and Munger is no longer with us. It does feel like Warren is in a bit of a reflective state. For example, he recently changed his will regarding how his fortune will be donated. At the last shareholder meeting in Omaha, Buffett raised a few eyebrows by strongly suggesting that he thought it should be Greg Abel (Berkshire’s future CEO) who will ultimately be responsible for investment and capital allocation decisions. While saying it will be up to the board, he would haunt them from the grave if they didn’t let it happen.

In the first six months of this year, Berkshire has had massive gains from selling companies like Apple and Bank of America. Taxable gains reported at the end of Q2 2024 are $73.7 billion vs. $4.6 billion in the first half of 2023. Berkshire’s cash and equivalents are now at a record $277 billion. For a company that is close to hitting a $1 trillion market cap, they have about 30% of that in cash!

Could this be the setup for Buffett to ‘fall on the sword’ and declare a one-time massive dividend to shareholders? Greg Abel seems great, but can anyone expect to be as good as the greatest capital allocator the world has ever seen?

By declaring a one-time, very large dividend, Buffett would relieve his successor from having to make this decision and quiet calls for a dividend, at least in the short term.

As a Berkshire shareholder, I hope this is not the case. I’d put the odds of this at approximately 0.01%. The more likely outcome is that if Abel or another Berkshire CEO should declare a dividend in the future, Warren would indeed come back to haunt them from the grave.


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