woodstein2002 writes (msg# 171348): "The day BRKa starts paying dividends is the day I sell."
Great! You'll probably be selling to me! I hope all you "dividend haters" drive the price into the ground.
Let's see, what WOULD Berkshire be worth today if it DID pay a dividend?
Well, last year Warren said he had 100 million$ pretax a week flowing in from just the operating companies. That would be about 65 mil$/week after taxes (-35%) or 3,380 mil$ per year (*52 weeks) or $2,202 per "A" (/1.534934 million "A" equivalents on 3/31/2003). So last year's dividend could have been ~$2,200 per "A" if WEB had just written checks instead of retaining that cash for reinvestment purposes.
Berkshire is a AAA credit, so let's discount the dividend by the yield on a AAA corporate bond. What's a AAA corporate bond paying? http: //www.bondsonline.com/asp/news/composites.html 30-Year AAA Corporate Bond yield = 5.44% on 5/16/2003.
And if WEB isn't retaining any of that free cash flow for reinvestment then real growth is probably going to be zip. But wait, there is always inflationary growth. Consider a small town barbershop. The barber has no real growth either. If he gave 4,000 haircuts last year he probably serviced ~4,000 customers/year a decade ago and ten years from now he'll probably still be averaging ~4,000 haircuts/year. But he can raise his price in line with inflation.
Let's use the compound average growth rate in the CPI-U over the last five years to estimate the nominal growth rate. http: //www.bls.gov/cpi/home.htm 5-Yr CAGR (CPI-U) = 2.49% (from 162.5 on 4/30/1998 to 183.8 on 4/30/2003).
Now I need my trusty 20 year old hp12c calculator to calculate the present value of 100 years of dividends growing at 2.49% per year and discounted by 5.44% per year.
[f] [CLEAR FIN] ... clears the financial storage registers. 100 [n] ... 100 years of dividends. 1.0249 [ENTER] 1.0544 [DELTA%] [i] ... stores 2.8783, the growth adjusted interest rate. 2200 [PMT] ... last year's dividend. [PV] ===> -71,957 ... calculates the present value.
So the free cash flow from the operating companies ALONE are worth ~72,000 $ per "A". Yesterday Berkshire closed at $73,550 (3/16/2003).
"Clearly dividends determine value" - John Burr Williams (see msg# 170913).
That would really make my day, a sell off on the day dividends commence.
Yes, woodstein2002, I know what you really meant. Sorry to use you as a "foil" to make a point. As long as retained earnings grow at a rate greater than the discount rate reinvestment makes sense. But still, I would like to see Berkshire pay a dividend, even if it is a tiny one (with a correspondingly large growth rate). Come on, Charlie's WESCO does!
PS: hp has a nice write-up on calculating the present and future values of an annuity that increases at a constant rate at equal intervals here: http: //h20015.www2.hp.com/en/document.jhtml?lc=en&docName=bpia5219