This is the second installment of a series written to share my perspective on the investment approach of Warren Buffett, Chairman and CEO of Berkshire Hathaway (NYSE: BRK.A), investor extraordinaire. After years of reading, researching and market testing what I have been able to grasp of Buffett's investment bias and patterns, I have learned some things that are very obvious and some more subtle, even contradictory at times.
After understanding, the first part to investing like Warren Buffett, comes the second part:
- Dividends are very important for long term investing success.
This simple concept has been discussed in every business journal, online and off, worth its weight in nano dust. I mention it often and one of my colleagues, Ted Allrich did an admirable job in his story: Comfort Zone Investing: Dividends -- a great addition to any portfolio.
Here is the simple truth, every time Buffett discusses dividends he explains why Berkshire does not pay any. He elaborates by reminding us that we, as shareholders of BRK, would likely not achieve as high an investment return on the capital if he gave it back to us, as we do through BRK stock appreciation. History has indeed proven him correct. The irony is that everything he invests in does pay a dividend, and this he does not mention.
Think about the companies in which BRK holds significant interest, and in many cases is the largest shareholder. The long term holds are well known: American Express (NYSE: AXP), Coca Cola (NYSE: KO), Procter & Gamble (NYSE: PG) through a merger with Gillette, Wal-Mart (NYSE: WMT) and Wells Fargo Corp (NYSE: WFC) to name a few. They all pay dividends! The newer acquisitions: PetroChina (NYSE: PTR), Conoco Phillips (NYSE: COP), Johnson & Johnson (NYSE: JNJ) and recently the Burlington North Santa Fe railroad (NYSE: BNI) -- see: With Warren Buffett by my side -- all pay dividends as well!
Buffett has even been buying traditional utility companies, and of course, more dividends. So, while Buffett does not think dividends are meaningful for Berkshire Hathaway, he absolutely thinks they are important when considering making an investment.
In the future, I believe Buffett will start paying BRK dividends and he knows that it will be good for the company and investors. It will reinforce accounting discipline and give investors something to glow about. Most importantly, however, if he is gone, his reason for not making distributions leaves with him.
Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.
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