BERKSHIRE SOCKS IT TO ’EM
Warren Buffett has written his annual chairman’s letter, which you’ll f ind at berkshirehathaway.com. It is, as always, an excellent read full of sharp insights, funny chirps and of course priceless advice for investors as he lets us into his thinking. This year one of his themes is dividends. Berkshire Hathaway is famous for never paying a dividend while at the same time Buffett is famous for loving the companies Berkshire Hathaway owns or controls to pay dividends. Personally, I have always been a dividend fan but Buffett makes a very strong case for not paying dividends, suggesting that the money is better kept within the company to grow the business and hence future profits. He then adds that if investors want income, they are better served by making sales of the stock every year rather than receiving dividends. Certainly his maths adds up albeit there are a number of assumptions such as the ability of the company to successfully use the extra cash, not paid out in dividends, to grow the business. But overall it has got me rethinking my stance on dividends.