Sometimes I think Warren Buffett is a joke…
Well, that isn’t quite fair, I think he’s the punchline to a joke. The zinger I usually tell amongst other stuffy investor-types goes something like this:
“Warren Buffett is actually a seven-year-old in disguise. All he does is invest in candy, ice cream, and trains…”
Maybe you have to be there (my delivery is impeccable), but it points to one of Buffet’s greatest strengths: the ability to invest in undervalued, niche markets. But, as they say, there’s some truth in every joke. For those less familiar with Uncle Buffett’s Berkshire Hathaway holdings, some of the major deals include See’s Candies, Dairy Queen, and BNSF Railway.
That’s pretty much what a little kid would pick if he were asked to invest in his three favorite things in the world.
Now, I’m not saying Warren Buffett is a man-child who lucked into all of these things… he’s an investing genius that the world has never seen before.
As one Tweet pointed out, Warren Buffett is worth as much as Campbell Soup, American Airlines, and John Deere combined.
That was followed up by a silly retort (which is par for the course for Twitter): “Yeah, but when’s the last time he beat the S&P 500?”
While it’s true that shares of Berkshire Hathaway (BRK-A) dropped 12% in 2015 – their worst year since 2008 – Uncle Warren typically beats the S&P like a drum…
So there is no real debate that Warren Buffet is a great investor. He knows how to find undervalued companies and snatch them up.
The real question is whether you should invest in his company, Berkshire Hathaway (NYSE: BRK-A). Sure, he’s an investing legend who is able to turn his fortunes into even larger fortunes. Sure, he’s the Oracle of Omaha. Sure, everything he touches seems to turn to gold.
For him…
But one thing I’ll say, is that he’s a hypocrite when it comes to his own company…
You see, Warren Buffet is a dividend maniac. If you look at his track record, he buys companies that pay dividends.
Just take a look at Berkshire Hathaway’s biggest holdings:
- The Kraft Heinz Company (NASDAQ: KHC) — 2.91% dividend
- Wells Fargo & Company (NYSE: WFC) — 3.1% dividend
- Coca-Cola (NYSE: KO) — 2.99% dividend
- International Business Machines Corporation (NYSE: IBM) — 3.41% dividend
- American Express (NYSE: AXP) — 1.90% dividend
As you can see, all of Berkshire Hathaway’s major holdings have one thing in common: they pay their shareholders dividends.
Berkshire Hathaway pays no dividends at all…
Whether you pony up $211,220 for a share of Berkshire Hathaway Inc. (NYSE: BRK-A), or decide to invest $140 in a share of Berkshire Hathaway’s “B” shares (NYSE: BRK-B), you’ll never receive one penny of dividend income.
And that’s the elephant in the room for me. I love dividends, because whether the market goes up or down, I still receive my dividend payments. I know many retirees that depend on that income stream to pad their lifestyles, or to even simply survive.
Now sure, that dividend money could certainly be put to good use for most companies: acquisitions, research and development, or expanding into new markets. Those are all great allocations of capital, and Uncle Warren has defended his company with that rationale…
But as an investor, I prefer to have my stake in the company regularly pay out. It doesn’t have to be a crippling amount — of course I’d rather not have the company go belly up to pay me a couple percent yield — but when a company like Berkshire Hathaway is doing well, I would certainly appreciate the dividend reward for my investment.
Not to mention the fact that I don’t want to be selling off shares here and there to bankroll my retirement. For one, those buying and selling fees add up quickly, and two — to put it crudely — it’s a pain in the ass. I’d rather collect a check every few quarters and call it a day.
Luckily, I’ve found a company exactly like Berkshire Hathaway that actually rewards its shareholders with a meaty dividend payment and continues to grow exponentially in the meantime…
I discovered a company that I call “Baby Berkshire.” And I’m not alone. Barron’s compares it to Warren Buffett’s firm 50 years ago… and said it’s “Like Berkshire Hathaway When It Was Early.”
It essentially does the same thing: buy up small, niche companies before they really blow up, and cash out afterward.
For example:
- It bought a U.S. manufacturer of thermal processing equipment designed to roast, toast, and bake processed goods including human foods, animal feeds, and industrial products. It sold the entire business just 15 months later and netted a $34 million profit.
- It acquired a business that provided industrial staffing services in 29 states. Then, it turned around and sold the company at the amazing valuation of 8.2x earnings… earning an enormous profit of $89 million!
- It bought a California-based company that manufactures high-performance coatings for premium eyewear. Two years later it sold this tech operation at a whopping $39 million profit.
The list goes on and on…
And the best thing? It actually pays out 80% of its market value in the form of dividends.
So, if you don’t have $211,220 to blow on a share of Berkshire stock — with no dividend — I’d highly recommend picking up some shares of this company for around $15 a share…
