Warren Buffett loves dividend-paying stocks, but Berkshire doesn't pay one — Here's why

Warren Buffett is a fan of buying dividend-paying stocks, but his conglomerate Berkshire Hathaway doesn't offer a payout itself, despite its tens of billions cash. A regular dividend is a way to reward shareholders by distributing a portion of a company's earnings, often quarterly, in the form of cash. Sometimes companies even offer a small discount for reinvested dividends. But the main reason Berkshire doesn't pay a dividend is that the Oracle of Omaha has been confident in his ability to deploy capital in more profitable ways. Even if Buffett thought he couldn't use the cash pile effectively, he would choose a buyback program to return capital to shareholders, instead of dividends. “Dividends have the implied promise that you keep paying them forever and not decrease them,” whereas repurchasing Berkshire's own stock is often even more beneficial for shareholders, Buffett said in a 2018 interview with CNBC. Of the two, “we would probably lean toward repurchase,” he said. The 93-year-old investor also ruled out the possibility of a special, one-time dividend payout. The top holdings in Berkshire's equity portfolio are almost all dividend payers. Apple , which accounts for more than 40% of the portfolio, pays a 0.6% dividend yield. Berkshire's second biggest holding, Bank of America , pays a dividend equal to a yield of 2.5%. Longtime holding Coca Cola pays a 3.1% dividend yield. Chevron offers a lofty 3.9.%, while American Express pays 1.2%. Berkshire initiated a buyback program in 2011 and relied on repurchases in recent years during a competitive deal-making environment and an expensive stock market. The conglomerate spent a record $27 billion in buybacks in 2021 as Buffett found few external acquisition opportunities. Even then, the buyback activity has slowed over the past year. 'Terrible mistake' Buffett recently recalled the only time Berkshire ever paid a dividend: it was in 1967, only two years after Buffett took over the failing textile manufacturer, and was for 10 cents a share. “It was a terrible mistake,” Buffett said during the 2023 annual meeting, followed by a small burst of laughter. “I always tell people that I'd gone for the men's room and the directors voted while I was gone. But that isn't true. I was there, I confess.” In 2014, there was a vote on Berkshire to pay a “meaningful annual dividend.” The small number of Class A shareholders who own the original, expensive Berkshire shares that sell for hundreds of thousands of dollars each, voted no by a margin of 89 to 1. But even the hundreds of thousands of Class B, or “Baby Berkshire,” shareholders voted no by 47 to 1. “I think they expect us to do whatever we think makes sense for all shareholders,” Buffett said in 2023. “And obviously, if we really thought we never could use the money effectively in the business, we should get it out, one way or another.”