2011: Will Berkshire ever pay a dividend?

BECKY QUICK: Aside from questions about Dave Sokol, the questions I’ve received most from shareholders have to do with dividends.

And Dave Corneal (PH), who is a shareholder who couldn’t be here this weekend because he’s at his daughter’s wedding, writes in, “I know that Berkshire is a great allocator of capital, but as an owner of stock and as I get closer to retirement, there will be a time when I will need income from my assets.

“Currently Berkshire does not pay dividends, yet it loves collecting on dividends on its investments. It also generates extensive cash flow in which it could pay dividends if it chooses to.

“Currently the only real option to get income from your Berkshire investment is to sell a share or two of the stock. Is there a point in the future where Berkshire shareholders may expect a dividend payment, or what conditions would be needed for Berkshire to consider paying a dividend?”

WARREN BUFFETT: Yeah, we will pay dividend — as a matter of fact, there may be an argument that when we pay dividends we should pay out almost 100 percent, because it does mean that we lost the ability to find ways to invest a dollar in a manner that creates more than a dollar of present value for the shareholders.

But let’s assume you had a savings account, and the savings account paid 5 percent. And you had your choice of taking $50 a year out, or letting the $50 stay in and somebody would pay you 120 percent of that savings account any time you wanted to sell a piece of it.

Now, would you want to take the $5 out or would you rather let it accumulate and have the ability to sell at 120 cents on the dollar, that account?

Every dollar that’s been reinvested in Berkshire has created more than a dollar of market value, so it’s much more intelligent, if you control the dividend policy of Berkshire, it’s much more intelligent for people to leave the dollar in, have it valued at $1.20 or $1.30 or whatever it may be valued, and then sell off a little piece if they want the income, or if they want to receive some cash.

And the logic of it, I think, is unquestionable. The execution of it is a problem. I mean, the question of whether we can keep investing dollars to create more than a dollar of present market value, you know, there’s an end to that at some point.

But so far, people, by leaving 160 billion at the end of third quarter in the business, have $200 billion that they can cash out for at any time they wish.

There will come a time and, you know, who knows how soon, because the numbers are getting big — there will come a time when we do not think we can lay out, you know, 15 or 20 billion a year and get something that’s immediately worth more than that for our shareholders.

And like I say, when the time comes where a dollar is only buying us 90 cents of value, we’ll quit spending the dollar. We’ll give it to the shareholders.

But I predict that the day that Berkshire declares a dividend, the stock will go down. I mean, it will — and it should go down — because it’s an admission, essentially, that a compounding machine has lost its ability to continue on that course.

Charlie?

CHARLIE MUNGER: Well, and there’s nothing wrong with selling a little Berkshire stock to buy jewelry if you do it in the right place. (Laughter)

WARREN BUFFETT: I would like to announce that my niece, Cynthia, visited Borsheims yesterday around — I guess around 3:00 — and she was there with her boyfriend, and he proposed, and they bought a ring. Congratulations. (Applause)

Her mother did the same thing a few years ago. And, you know, these things become family traditions, so go out there and who knows what will happen? (Laughter)