Warren Buffett is quite a popular name in the business world, and even amongst the general population. Many tend to associate the name with "investing" and "rich", but what are some of his investing habits?
Today, we'll be looking at one key term: dividends.
Buffett's Berkshire Hathaway does NOT enjoy giving out dividends, so much in fact that the only time they did was back in 1967. Why is this? Well, Buffett is a firm believer of his money making more money, and he believes that his company could better use that extra cash for capital gain as opposed to giving back to the shareholders. Think about it like this: If you owned a hotdog stand, would you rather spend some of that profit to go buy a new bike or reinvest it back into the business and become the greatest hotdog stand in town? With $125 billion in cash at the end of 2019, some shareholders questioned whether Buffett would dedicate some of it to them. However, with average annual returns of 20.5% since trading began in 1965, shareholders aren't exactly complaining (however, in recent years Berkshire has slowed down from their benchmark in terms of growth, but that story's for another day).
Berkshire Hathaway's portfolio has holding in dividend stocks including Suncor Energy, Apple, and Coca-Cola. In fact, at the end of 2019, Berkshire made it known that out of the 52 securities it owns, 36 pay dividends. Moreover, 10 of those companies, including Bank of America, Wells Fargo, and American Express are providing him with more than $100 million in dividends each, this year. Overall, in 2019 he brought home $3.8 billion in cash dividend payments from the various companies he's invested in. Although Buffett hates giving out dividends, he loves getting them, as they serve as a protective guard. In the case of a depression or a time of zero/slow growth, dividends provide a safe haven for having at least some of your investment returned. Even better, if the dividend stock continues to go up in trading price, well now you've made money through appreciation AND dividend payments.
If arguably one of the greatest investors sings praises about owning dividend stocks, then shouldn't you too?
Any thoughts? Feel free to comment below