Dividend occupies minds of Omaha pilgrims
By Ellen Kelleher in Omaha, Nebraska.
Published: May 1 2005 15:48 | Last updated: May 1 2005 15:48
The shareholders eating barbecue under a large tent outside the Nebraska Furniture Mart after Berkshire Hathaway's yearly meeting came to a close did not have too many concerns.
Most make the pilgrimage to Omaha, Nebraska every year. And followers of the legendary “Sage of Omaha” did not seem worried that investigations in the insurance sector could blemish Warren Buffett's reputation and that of his insurance and holding company.
But as they devoured their pulled-pork sandwiches, they discussed one issue intensely: The possibility that Mr Buffett might decide to offer them a dividend.
Dieter Atzwanger, a shareholder from Germany, said “I'd like him to do it.”
Vincent Freda, a shareholder from Los Angeles, said: "I think there's a new era dawning where Warren is going to have to give back the money."
Over the weekend, Mr Buffett warned investors that he and Charlie Munger, Berkshire's vice-chairman, were still having a very tough time finding suitable companies to invest Berkshire's underutilized capital. The company has about $44bn in its coffers.
”At the moment, we've got more money than brains,” Mr Buffett joked.
Berkshire has not declared a cash dividend since 1967, but Mr Buffett told the throngs of shareholders who assembled at a stadium in downtown Omaha to put questions to him, he would consider reinstating them if investment opportunities remained limited over the next two years.
Berkshire's insurance and reinsurance businesses generate a rolling “float” of funds that if managed well can amount to investment capital that is almost free. Over the last two years, the float has increased from $41bn to $44bn.
In the past, Berkshire has bought companies that offer everything from textiles and chocolates to kitchen tools and mobile homes. It also has stakes in Coca Cola and American Express and benefited greatly from Gillette shares post the announcement of its merger with Procter& Gamble.
However, in recent years, Mr Buffett has been skeptical about current valuations of companies and other investment opportunities. And the group has been on the hunt for an acquisition in the $5bn to $20bn range for years.
”What Charlie and I would like is a little action right now,” Mr Buffett wrote in last year's annual report. “We don't enjoy sitting on $43bn of cash equivalents that are earning paltry returns.
”Instead, we yearn to buy more fractional interests similar to those we now own or better still- more large businesses outright. We will do either, however, only when purchases can be made at prices that offer us the prospect of a reasonable return on our investment.”
Apart from a deal to take over an insurance company, worth less than $1bn, no additional acquisitions are scheduled.
A shares in Berkshire Hathaway are now trading at $84,350 and B shares Berkshire's shares at 2,7981.01. Last year, Berkshire's shares under-performed the S&P 500 of US companies by .4 per cent.
Shareholders appear to be growing a bit discontented, particularly older ones with A shares who might want to cash out their investments.
Larry Jacobsen, a shareholder from Los Angeles believes Mr Buffett may have to entice elderly shareholders to hold on to their stakes with a dividend. “They are looking to free up cash,” he said.
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