I’ve discussed this in the past but we got yet another example last week when Buffett’s Berkshire announced it was acquiring HJ Heinz Co (HNZ). In a way, Buffett might be one of the top dividend investors in the world
. He owns several businesses that pay back cash flows to Berkshire every month. Companies in sectors such as insurance, utilities, energy, railroads, tv etc. He also holds big stakes in oil companies (Conoco Phillips-COP), food companies (Kraft Foods-KFT, Coca-Cola KO), credit card companies (American Express-AXP), financial services (Wells Fargo-WFC), etc.
I don’t know about you but when I look at those investments, I do see a profile very similar to what successful dividend investors attempt to build. In a way, is Berkshire the ultimate sustainable dividend portfolio? These are all companies that have:
-consistent cash flows
-have paid out consistent dividends for many years/decades
-have strong brands
-operate in stable industries (known competition, stable market share, etc)
-tend to do well independently of the overall economy
Dividend Investors.. Why Not Buy Berkshire Then?
Instead of trying to build a solid, diversified dividend portfolio, why not at least consider buying Berkshire? The fees involved are minimal and you have a team (led by Buffet) committed to reinvesting that money in the most efficient manner…
There is “other stuff” in Berkshire. Yes I know, we’ve heard about things like Buffet’s long term puts on indexes, derivatives sold to major banks (kind of ironic considering how outspoken Buffet has been against such products). That being said, they have minimal weight within Berkshire.
Berkshire DOES NOT EVEN PAY DIVIDENDS
That is certainly what would stop most dividend investors. It is without a doubt a bit of a contradiction. I would argue though that having the money stay within Berkshire can help me delay any taxes paid for years and perhaps decades (until I end up selling some of my position). Yes, at that point I would need to start selling some of my shares every year but you would think that such a strategy could still make a lot of sense.
It’s absolutely true that Berkshire has not been doing as well in recent years, which can be expected as the size of the company continues to increase. Finding opportunities is a lot easier when you have a few millions of dollars to invest than when it’s billions…That being said, even in the past 10 years, Berkshire has outperformed the S&P500, with a focus on steady, stable and growing income from all of its different divisions.
Seems to me like a winning formula right? Do you agree?
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