Comment re. "Berkshire Hathaway as an Income Stock": BRK.B currently trades at around $400/sh, if my grandma has $10,000 of BRK.B and Buffett retires 1% of those total shares, how can my grandma sell BRK.B stock in order obtain an equivalent 1% ‘home made’ dividend of ($10000x0.01=)$100?
In order for at least 1 full share to equal 1% of a position in BRK.B that she can sell off, the position would need to be of size ($400/0.01=)$40,000. Even if my grandma was a real Berkshire fan-girl and BRK.B were a concentrated 10% of her portfolio, that would imply a total portfolio value of ($40000/0.10=)$400,000. (The median net worth of seniors only just approaches that number and is much lower for the median younger demographics and this is counting all assets, not just stock portfolios (https://www.cnbc.com/select/average-net-worth-of-americans-ages-75-and-up/)). Basically, there are a lot of not-unreasonable cases where a 'home made' dividend done in concert with company buybacks is simply not feasible for the average person once stock prices reach certain absolute dollar levels per discrete share.
(Maybe this would change if trading fractional shares of stock ever takes off, but that seems to be slow going).
This book (https://www.amazon.com/Ownership-Dividend-Daniel-Peris/dp/1032273194/ref=tmm_pap_swatch_0?_encoding=UTF8&qid=&sr=) was published back in January, and while not an explicit examination of the rationale of dividends as a form of capital allocation, does make a reasonably interesting argument for why the 'cash nexus' (a terrible term, but basically the idea that investors' main benefit of owning stock in company will shift from being the retention/reinvestment of capital and enjoying principal appreciation, to principally a dividend-based relationship due to multiple appreciation being tapped out) will make a comeback over the next decade. Given your wide-ranging reading on the topic, it might be of interest to you. I'm not sure I agree with all points made, but found it an interesting history & a healthy alternative perspective to my own.
As always, thank you for the effort you put into your writing. Rational, indeed!
Hi, there are funds, institutions, and private investors, globally, who cannot or will not buy a non-dividend paying stock. The increased demand for the common should more than make up for the tax consequences of a small dividend. Especially for Buffett who has been a huge seller through the foundations since 2008 or so.
Always good to read an informed rational assessment of the role of dividends, buybacks, acquisitions, and internal expansion in corporate capital allocation decisions. Corporate America would be much stronger if more CEOs made allocation decisions like Buffet, Singleton, et al. I wonder if it's a problem of incentives, knowledge/skill, regs/taxes, opportunity set, etc.
Comment re. "Berkshire Hathaway as an Income Stock": BRK.B currently trades at around $400/sh, if my grandma has $10,000 of BRK.B and Buffett retires 1% of those total shares, how can my grandma sell BRK.B stock in order obtain an equivalent 1% ‘home made’ dividend of ($10000x0.01=)$100?
In order for at least 1 full share to equal 1% of a position in BRK.B that she can sell off, the position would need to be of size ($400/0.01=)$40,000. Even if my grandma was a real Berkshire fan-girl and BRK.B were a concentrated 10% of her portfolio, that would imply a total portfolio value of ($40000/0.10=)$400,000. (The median net worth of seniors only just approaches that number and is much lower for the median younger demographics and this is counting all assets, not just stock portfolios (https://www.cnbc.com/select/average-net-worth-of-americans-ages-75-and-up/)). Basically, there are a lot of not-unreasonable cases where a 'home made' dividend done in concert with company buybacks is simply not feasible for the average person once stock prices reach certain absolute dollar levels per discrete share.
(Maybe this would change if trading fractional shares of stock ever takes off, but that seems to be slow going).
This book (https://www.amazon.com/Ownership-Dividend-Daniel-Peris/dp/1032273194/ref=tmm_pap_swatch_0?_encoding=UTF8&qid=&sr=) was published back in January, and while not an explicit examination of the rationale of dividends as a form of capital allocation, does make a reasonably interesting argument for why the 'cash nexus' (a terrible term, but basically the idea that investors' main benefit of owning stock in company will shift from being the retention/reinvestment of capital and enjoying principal appreciation, to principally a dividend-based relationship due to multiple appreciation being tapped out) will make a comeback over the next decade. Given your wide-ranging reading on the topic, it might be of interest to you. I'm not sure I agree with all points made, but found it an interesting history & a healthy alternative perspective to my own.
As always, thank you for the effort you put into your writing. Rational, indeed!
Excellent article...clean and concise!
Hi, there are funds, institutions, and private investors, globally, who cannot or will not buy a non-dividend paying stock. The increased demand for the common should more than make up for the tax consequences of a small dividend. Especially for Buffett who has been a huge seller through the foundations since 2008 or so.
Always good to read an informed rational assessment of the role of dividends, buybacks, acquisitions, and internal expansion in corporate capital allocation decisions. Corporate America would be much stronger if more CEOs made allocation decisions like Buffet, Singleton, et al. I wonder if it's a problem of incentives, knowledge/skill, regs/taxes, opportunity set, etc.