Berkshire Hathaway: Dividend Policy Paradigm
(5 pages of text)
Case (Pub Mat)
Berkshire Hathaway Inc., a goliath enterprise that had grown tremendously over a half century, had never paid a dividend. The chairman of Berkshire Hathaway inc., advocated an investment policy of reinvesting in existing assets, acquiring diversified assets, and buying back shares in the company, but never paying a dividend. However, in 2017, excess cash and short-term reserves were earning a yield value that was less than the inflation rate, effectively decreasing the real value of the reserves. The company was not finding suitable new acquisitions, and shares in the company were trading above the company's limit for repurchase. Amid public speculation, Buffett began musing that perhaps the best course of action for Berkshire Hathaway Inc. at that point was to pay a dividend after all.
This case is suitable for undergraduate- and graduate-level courses on corporate finance to analyze
- Berkshire Hathaway's dividend policy;
- the strategic use of share repurchase as an alternative to dividends; and
- the factors relevant to deciding whether to pay a dividend.
Students must analyze the rationale behind the chairman's investment approach, the history of Berkshire Hathaway's growth through mergers and acquisitions, and the financial data outlining the company's growth. Students must decide what the company should do and whether it ought to change its investment policies.
Finance and Insurance
United States, Large, 2018
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