Berkshire Hathaway is a remarkable company, not only because of its size and its celebrity chairman Warren Buffett, but for the way that the corporation does business. In addition to having a strict criteria for acquiring new businesses, the company also has never split its Class A stocks, and has only paid one dividend to its shareholders—a whopping $0.10 per share in 1967. Buffett joked that he must have been been in the bathroom when that decision was made.
Since 1967, two years after Warren Buffett assumed control of Berkshire Hathaway, the company has not made a single dividend payment to its shareholders, despite frequent lobbying for it at the annual shareholders meeting, record profits, and plenty of cash on the balance sheet to spare (at the time of writing, Berkshire Hathaway was estimated to have around $80 billion in cash sitting around). But, despite this, Buffett defends his decision to keep dividends within the company.
“We don’t pay dividends because we think we can turn every dollar we make into more than a dollar in market value,” Buffett said at one of the shareholder meetings. “The only reason for us to keep your money is to make it worth more by us keeping it than it would be worth if we gave it to you. That’s the test, if we come to the conclusion that we can’t do that, we should distribute it to you.”
Basically, Buffett is saying that by keeping the dividends, it gives Berkshire Hathaway more money to reinvest and make big acquisitions like BNSF, which will increase the market value of Berkshire Hathaway and therefore make the company worth even more money.
Some people argue against this strategy, and it’s not hard to see why it would be frustrating watching the profits go up and up without any kind of incentive. For those looking for additional payouts, Buffett recommended shareholders sell off a portion of the gain in order to create their own dividends. This way, Buffett reasoned, shareholders would arguably be paying less tax. Either way, shares of Berkshire Hathaway continue going up so even without a payout, the investment is still a worthy one.