Costco’s dividend policy is the right model, and it fits Berkshire: both companies have large amounts of cash income, which they can utilize successfully to the benefit of shareholders—Costco to buy real estate on which to build more warehouses; Berkshire to buy opportunistically its shares or other investments. But Berkshire won’t pay a cash dividend until after Warren dies. He does not need a taxable dividend on shares he was designated to society. A cash dividend before he dies would result in a substantial tax diverted from his desired end purpose. What happens after he has gone would best be modeled after Costco. I’m sure he has given considerable thought to this. I suppose he might announce such a plan before he leaves, but he has,yet, no departure schedule.
For those of us who enjoy a cost basis within a rounding error, a dividend of Costco’s is immaterial, but I am quite experienced at picking my own ‘pay’ date. So, I’m largely an agnostic, which means I’m an atheist, thank god. I like the theology!
A thought has occurred to me that Warren might try even before he dies. Many of us own very low-cost shares; he owns the lowest. When we contribute shares to our donor advised fund we avoid the capital gain tax due, but we are allowed to deduct annually only 30% of our taxable income, with a 5-year carry forward. If Berkshire were to pay a large special dividend, the entire cash dividend is immediately deductible, if contributed to the DAF. Warren could do this. This would solve his problem of receiving cash he doesn’t need or want with the accompanying tax. While this would work for many long-time shareholders, it might exceed the already accumulated charitable carry forwards from his annual share gift. Somewhere he said that he will not be able to fully utilize these possible deductions.
Costco’s dividend policy is the right model, and it fits Berkshire: both companies have large amounts of cash income, which they can utilize successfully to the benefit of shareholders—Costco to buy real estate on which to build more warehouses; Berkshire to buy opportunistically its shares or other investments. But Berkshire won’t pay a cash dividend until after Warren dies. He does not need a taxable dividend on shares he was designated to society. A cash dividend before he dies would result in a substantial tax diverted from his desired end purpose. What happens after he has gone would best be modeled after Costco. I’m sure he has given considerable thought to this. I suppose he might announce such a plan before he leaves, but he has,yet, no departure schedule.
For those of us who enjoy a cost basis within a rounding error, a dividend of Costco’s is immaterial, but I am quite experienced at picking my own ‘pay’ date. So, I’m largely an agnostic, which means I’m an atheist, thank god. I like the theology!
A thought has occurred to me that Warren might try even before he dies. Many of us own very low-cost shares; he owns the lowest. When we contribute shares to our donor advised fund we avoid the capital gain tax due, but we are allowed to deduct annually only 30% of our taxable income, with a 5-year carry forward. If Berkshire were to pay a large special dividend, the entire cash dividend is immediately deductible, if contributed to the DAF. Warren could do this. This would solve his problem of receiving cash he doesn’t need or want with the accompanying tax. While this would work for many long-time shareholders, it might exceed the already accumulated charitable carry forwards from his annual share gift. Somewhere he said that he will not be able to fully utilize these possible deductions.
Interesting! I hadn't really ever considered this aspect of the dividend question.
Agreed on both counts. A Costco-style dividend after Warren Buffett departs is, in my opinion, the overwhelmingly most likely scenario.
Berkshire won't pay a dividend. This is why: https://rockandturner.substack.com/p/how-dividends-destroy-shareholder-value