Berkshire Hathaway has returned an average 19.9% a year since Warren Buffett took control in 1965, beating both dividend-paying stocks and the S&P 500 despite paying only one dividend, in 1967. Buffett's reinvestment-first approach has relied on Berkshire's own capital-allocation skill, a strategy now inherited by CEO Greg Abel and the company's $365.5 billion cash pile.
Dividend-paying stocks have delivered an average annual total return of 9.2% over the past 50-plus years, more than double the 4.2% posted by companies that don't pay dividends, according to data from Ned Davis Research and Hartford Funds. Berkshire Hathaway is the exception: the company has generated a 19.9% average annual return since Warren Buffett took it over in 1965, beating both dividend payers and the S&P 500's 10.4% return over the same stretch.
Berkshire has paid one dividend since 1965
Berkshire has paid a dividend just once, in 1967, since Buffett took control of the former textile company in 1965. Buffett believed reinvesting retained earnings would create more long-term value than shareholders would gain from receiving a dividend and reinvesting it in more Berkshire shares after taxes.
That confidence stemmed from Berkshire's shift into a diversified holding company with broad reinvestment opportunities, rather than a single operating business reliant on one CEO's judgment. Most companies that skip dividends do so out of necessity, plowing cash into growth until they run out of money or mismanage cash flow as they mature.
Dividends still cushion volatility
Dividend stocks haven't just outperformed non-payers — they've done so with less volatility. Dividend payers have carried a standard deviation of 16.7% since 1973, compared with 21.9% for non-payers. Companies that initiated and grew their dividends returned an average 10.2% annually with a standard deviation of 16%, according to the same data. Since 1940, roughly a third of the S&P 500's total return has come from dividend reinvestment, though that contribution has fallen to a mid-teens percentage in recent years as companies pulled back from paying dividends starting in the 1990s.
Abel inherits a $365.5 billion cash pile
Berkshire built up $365.5 billion in cash by the end of the second quarter, and what's uncertain now is whether Buffett's successor as CEO, Greg Abel, shares the same mindset. Abel has already started deploying capital, buying back Berkshire stock, expanding its investment portfolio, and acquiring homebuilder Taylor Morrison. Berkshire should keep outperforming as a non-dividend payer only if Abel keeps finding investments with high enough returns.
Source: The Motley Fool
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