Why Berkshire Hathaway Doesn't Pay Dividends

If you're considering investing in Warren Buffett's company Berkshire Hathaway (BRK.A) (BRK.B), that's a smart choice, as it's a phenomenal business. However, if you are expecting to earn dividend income from this stock, there's something important to know: Berkshire Hathaway does not pay dividends. That said, there might be a time in the future when that could change.

Warren Buffett is well-known and respected in the investment world.

Typically, companies begin to pay regular dividends when they have more cash than they can use effectively. Companies like to reinvest their earnings to fuel growth through hiring, marketing, or building new facilities. Furthermore, they may choose to use cash to pay down debts, buy back shares, or reward employees with bonuses.

Many companies struggle with having more ways to spend their cash than cash available. However, Berkshire Hathaway is different; it is an impressive cash generator, and its cash reserves recently reached $325 billion. With this substantial amount, Berkshire could easily acquire major companies.

So, why isn't Berkshire paying out dividends given all this cash? One reason is that while Buffett appreciates dividends — in fact, the companies that Berkshire owns pay dividends of around $4.5 billion each year — he has a long history of acquiring companies and is likely still on the lookout for new investment opportunities for Berkshire. Allocating cash for dividends would limit his capacity to pursue these acquisitions.

It's possible that one day Buffett or his successors will find themselves with more cash than they can wisely invest. At that point, they might decide to start paying dividends. Until then, shareholders can look forward to potential appreciation in share prices over time, and for income needs, they can choose to sell some of their shares.

Buffett also has another method of rewarding shareholders: share buybacks. By repurchasing shares and effectively removing them from circulation, each remaining share becomes more valuable. Generally, Buffett favors buybacks, especially when the shares are undervalued. This approach benefits all shareholders without triggering a taxable cash payout for them.

Berkshire, Dividends, Buffett