Author: William Bratton


Berkshire’s Dividend Policy: Part II

Part I of this post left off with the 2011 Berkshire Annual Report, included in Larry Cunningham’s third edition of The Essays of Warren Buffett: Lessons for Corporate America.   There the story of Berkshire payout policy took an historic turn. Berkshire finally announced itself ready to repurchase, provided (1) that the per share market price stood at no more than 110% of book value per share, and (2) that cash-equivalent holdings ready for reinvestment or acquisitions equaled at least $20 billion.  

Events then took still another turn.  It seems that the 110% rule was relaxed to 120%, with Berkshire purchasing a big block of stock at 116% during 2012.  (See BRK News Release here.) A look at the cash flow statement gives the totals: $1.296 billion repurchased in 2012 versus $67 million in the previous year and 0 the year before that.

Yet there is apparent dissatisfaction: this year’s Annual Report notes that “a number of Berkshire shareholders – including some of my good friends – would like Berkshire to pay a cash dividend.”  Why?  Cash and cash equivalents on the 2012 Berkshire balance sheet total $49.992 billion, far north of the $20 billion minimum cited a year earlier.

Meanwhile, the annual Berkshire vs. S&P 500 comparison favors the S&P 500 for the third time in four years.  Maybe the 120% plus full disclosure test is thought to leave open too small a payout window.  If Berkshire stock refuses to cooperate with the payout policy by holding its value, there’s only one alternative: the old-fashioned mode of dividend.

Thus does Buffett mount the battlements to make the case for the historic no dividends policy.  I hope Larry won’t mind if I anticipate his fourth edition and quote it in full (from this year’s Annual Report): Read More


Berkshire’s Dividend Policy: Part I

Prof. Bratton

Way back in 1996, when Larry Cunningham asked me to contribute a paper to his original Warren Buffett symposium at Cardozo Law School, I picked dividends as my topic.  I had two reasons, (1) I had always wanted to write a paper on dividends and was looking for an excuse, and (2) Berkshire Hathaway’s absolutist policy against dividends presented the best possible excuse for a paper.  The no dividends policy provided a great start point, for, while posing theoretical problems, it went hand in glove with Berkshire’s unparalleled growth record and relentless long-termism, not to mention Buffett’s status as a capitalist folk hero.  I later put out a second paper on dividends, written on the occasion of the Bush tax cuts.

So it’s no surprise that I went straight for to dividend chapter when I opened Larry’s third edition of The Essays of Warren Buffett: Lessons for Corporate America.  I had a feeling that times were going to have changed, and they have done so.   Where payout policy was once a bedrock point at Berkshire Hathaway, there is now an incipient sense of stress.  Things are changing, so much so that the third edition cannot keep up.  To put together an account of treatments of payout policy in the essays in Berkshire’s Annual Reports, reference also must be made to this spring’s review of 2012.  Take that together with the excerpts in Larry’s third edition and a cloudy picture emerges.

Let us trace Buffett’s views on payouts as it evolves from edition to edition of The Essays of Warren Buffett: Lessons for Corporate America. Read More