Why Berkshire Hathaway Doesn't Pay a Dividend

If you are considering investing in Warren Buffett's company Berkshire Hathaway (BRK.A, BRK.B), that’s great! Berkshire Hathaway is known as a strong and reliable business. However, if your aim is to earn some dividend income from this stock, you may be disappointed to learn that Berkshire Hathaway does not distribute dividends to its shareholders.

Warren Buffett. Image source: Unsplash.

In general, companies start paying dividends when they find themselves with more cash on hand than they can effectively use for growth. Typically, businesses prefer to invest their profits back into the company by hiring new employees, increasing marketing efforts, building additional facilities, or pursuing other growth opportunities. They may also use available cash to reduce debt, buy back shares, or incentivize employees.

Some companies experience a surplus of cash but still have endless opportunities for investment, while others might find themselves in the opposite situation. In the specific case of Berkshire Hathaway, the company generates a significant amount of cash, which has recently soared to an impressive total of $325 billion. With this amount, Berkshire could easily acquire major companies without having to take out loans.

So, why hasn’t Berkshire Hathaway decided to issue dividends? Warren Buffett, the company’s chairman and CEO, appreciates dividends, as evidenced by the fact that the stocks held by Berkshire pay out an estimated $4.5 billion in dividends each year. However, Buffett is known for his preference for acquiring companies outright rather than settling for minor shares of ownership. By paying dividends, he would restrict the cash he could use for further acquisitions.

While it’s possible that one day Buffett or his successors might decide they have more cash than they can effectively use, pushing them to initiate a dividend, for now, they prefer to keep funds available for business development and investments. Until that time comes, shareholders can look forward to potential appreciation of their shares over the long term. If investors need some cash flow, they can consider selling a portion of their shares instead.

Additionally, Buffett tends to reward shareholders through stock buybacks, which effectively reduces the number of outstanding shares. This can make each remaining share more valuable. In general, Buffett supports buybacks as long as they are conducted when the shares are undervalued. This method rewards shareholders indirectly, without necessitating immediate taxable payouts.

Berkshire, Buffett, Dividend