Will this stock ever pay a dividend? How about BRK just passing along the dividends it receives on its massive stock portfolio holdings and let the 'float' serve as its future investment purchases
You bring up a very valid point... According to Mr. Buffett, there are three acceptable ways for a company to use the shareholder's money (and he believes that Berkshire is truly owned by its shareholders, so that it is their money):
1. If the company can get at least 1 dollar worth of added value (in real terms) from investing that one dollar back into the business, then that is an appropriate way to use the funds. For example, if Warren can get shareholders a 11.9% return on the invested capital, and the market is giving them 8%, then it would make sense for Berkshire to keep the money and continue to compound real growth (Berkshire is a compounding machine). This is a way for the company to add to the wealth of its shareholders, without the shareholders having realized income (and adding to their personal income taxes).
2. If the shares are trading below their intrinsic value (their long term earnings power discounted back to today), then the company should repurchase shares. In essence, if each Berkshire share (we will use the B shares or ease) is selling for 97 dollars, but are worth 110 dollars... then rational management should buy shares. It is trading 97 of your dollars to get you 110 dollars worth of value. When this is done, the percentage ownership of the company you own with each share goes up... without you having to pay another nickle out of your earned income. This is a way to return capital to shareholders, without the shareholders paying taxes on the income (the corporation pays taxes still, but you don't get taxed on this effective distribution).
3. Dividends: If the corporation can't find rational use of the money, and the shares are trading at a premium to intrinsic value, then the corporation should return the capital to shareholders for them to use the money more efficiently. Now, for each dollar that gets returned, it gets taxed at the individual level... this is different tax rates, but if it is at 20%, then it means you only get 80 cents on the dollar. You would have to get 25% return on that 80 cents just to get back to the 1 dollar worth of value you would have if it was kept in Berkshire.
The mark of rational management (in regards to capital allocation) is: Can they make that decision in away that reflects the best interests of the owners of the corporation?
It might interest you to know, that Berkshire board member Bill Gates has commented that at some point in the future, the Board may consider a dividend... it is an option. It is just not the right choice at the moment.
Sentiment: Strong Buy
Welcome back, mrwizard. I did follow up on your recommendation and bought a small amount of JPM-PO in July 2011. I put it on picket duty, suspecting that it would be the first of my preferreds to be called. JPM did a partial call in April 2012. They took 325 of my 400 shares and I exited the position by selling the remaining 75 shares, ex-dividend, at a small premium to par, that same month. All in all, it was a good learning experience, and I made a little money too. Thanks.
You just got a 3.5% dividend today. Just sell 3.5% of your Berkshire holdings = your dividend, and the effective ex-dividend amount of stock you hold will be adjusted just like any normal dividend.
These dividend happy investors just don't get it. I tell you what. You give your money to me. I'll pay you a 5% dividend. Then we'll all be happy.
You will have to "dial it down" a bit more on your explanation to the "NO Dividends cry-babes" so they can understand. They probably do not know they can sell their holdings in BRK_B...
Sentiment: Strong Buy