Berkshire’s Class A shares top $300K
Q: I read that shares of Warren Buffett’s company, Berkshire Hathaway, are priced around $300,000 apiece. Can that be right? How can most people invest in it?
A: You read that correctly. The shares that traded for less than $20 apiece when Buffett took over the company in the early 1960s topped $300,000 in early December 2017. In his 50th anniversary letter to shareholders, Buffett noted a 1,826,163 percent gain in the market price of the company’s shares in those 50 years. That’s an average annual gain of more than 21 percent!
The stock price (recently above $300,000) is indeed too high for most investors — but that’s only for the Class A shares. In 1996, Buffett introduced Class B shares, valued at ⅓0th of Class A shares, making them much more affordable for average investors. (They initially traded near $1,000 apiece.)
In 2010, when Class A shares were priced near $100,000 and Class B shares were around $3,000, Buffett split the B’s 50-for-1, bringing their price down to around $60. They have risen to around $200.
Fool’s School: Dividend growth
Don’t let yourself assume that dividends are boring little payments that don’t add up to much. Dividend investing is quite powerful.
When you buy shares of healthy and growing dividend-paying companies, you’re likely to receive payouts every year, regardless of what the economy is doing. Many blue-chip companies’ dividend yields (their annual dividend total, divided by their share price) easily top the low banking interest rates available to savers today.
Here’s something investors rarely consider: Imagine you bought 10 shares of the Antisocial Media Co. (ticker: SCRAM) for $100 each, and it offers a respectable 3 percent dividend. With a $1,000 investment, that’s an annual payout of $30. That’s not a huge sum, but healthy companies tend to increase their dividends regularly.
A few years down the line, Antisocial Media might be trading at $200 per share. Imagine that its dividend yield is still 3 percent, as its dividend has been gradually raised to $6 per share. (Note that $6 is a 3 percent yield for anyone buying the stock at $200, but because you bought it at $100, it’s effectively a 6 percent yield on your initial investment.)
Imagine that many years later, your initial 10 shares have split twice and become 40 shares, each worth $225. Your initial $1,000 investment is now valued at $9,000. The dividend is now $6.75 per share for a yield that’s still 3 percent, so your 40 shares deliver a whopping $270 per year. You’re now earning $270 for the year on a $1,000 investment. That’s an effective return of 27 percent per year (and growing) — without even counting any stockprice appreciation. The yield on your initial investment has gone from 3 percent to 27 percent because you just hung on to a growing company. Even if the stock price drops, you’re still likely to get that 27 percent payout — unless the company is in trouble. Name that company
I trace my roots to the 1818 founding of a trading company in Amsterdam. In 1884, I started a grain trading business in Argentina, expanding to Brazil in 1905 and North America in 1918. Today, I’m a global agricultural giant based in White Plains, New York. I sport a market value of more than $9 billion and employ about 32,000. I buy, sell, store and transport oilseeds and grains; process oilseeds to make protein meal (for animal feed) and edible oil products; produce sugar and ethanol; mill wheat, corn and rice; and sell fertilizer. Who am I?
Last week’s answer
Nearly 20 major companies were integrated over time to form me, and their innovations and achievements include the Flying Wing, the B-2 Spirit stealth bomber, transporting Charles Lindbergh across the Atlantic and carrying astronauts to the moon’s surface and back. Today, I employ more than 60,000 worldwide. Who am I? (Answer: Northrup Grumman)