Will Warren Buffett Offer a Dividend, After 49 Years?

NEW YORK (TheStreet) -- The financial press was, as usual, busy on Monday planning the future of Warren Buffett's Berkshire Hathaway(BRK.B) without any input from Buffett himself.

Barron's ran an article speculating that Berkshire Hathaway will add a dividend sometime in the next year to two years, in the range of 2%, without a comment from Buffett; without a comment from anyone actually. It was just the logical speculation born out of the fact that Buffett and Berkshire Hathaway are sitting on a mountain of cash, possibly $50 billion in the company's insurance business alone. Maybe Barron's had Buffett on background, in the classic wink and nod between journalist and source where the source spills the beans while declining to comment for the record, though that's not Buffett's typical way of dealing with the press. Maybe it was a hedge fund manager and long-time Berkshire Hathaway investor speculating on a dividend and telling Barron's it's a done deal. However, there are plenty of Berkshire Hathaway experts who doubt a dividend is coming.

Berkshire Hathaway could use a nice trigger to move its shares higher, for one thing, since the stock hasn't budged much higher than the $80 mark in a year. Berkshire Hathaway shares popped by 3% on Monday, on twice its average daily trading volume based on the dividend speculation. There's no event on the horizon like the S&P 500 inclusion that occurred last year to spur Berkshire Hathaway shares much higher in the short-term. Yet it would be misguided to think that Buffett would make a decision as fundamental as a dividend policy to move shares of Berkshire higher; in fact, Buffett would probably be the first to call for his removal as CEO if he ever acted on this market massaging impulse.

Warren Buffett, CEO of Berkshire Hathaway, which hasn't paid a dividend since 1962.

Barron's also speculates that a dividend would take some of the pressure off any successors to the top posts at Berkshire Hathaway when Buffett retires, so they wouldn't be faced with the need to find acquisitions for all the cash. Yet wouldn't Buffett choose successors based on his comfort level with them continuing the long-held Berkshire Hathaway investment philosophy, including being able to find the best uses for cash? Wouldn't it seem very un-Buffett-esque to make a decision over a dividend policy based on fear, and namely the fear that he was putting too much pressure on his successors to execute on acquisitions. If Buffett picks the right people to replace him after a multi-year planning process, the net impact of this decision shouldn't be worrying about whether his successors are up to the task.

Additionally, it's far from a fact that a dividend would be in the best interest of Berkshire Hathaway shareholders, and it's also hard to understand why a dividend would more likely be a use for Berkshire Hathaway excess cash versus, say, a share-repurchase program.

>>Berkshire Dividend in the Works: Barron's

Indeed, Barron's described the Berkshire Hathaway dividend as "likely," without providing any attribution. While Warren Buffett wasn't speaking to Barron's for the record, he's spoken plenty in the past -- through his annual letter to shareholders -- about the issue of hoarding cash, and about the dividend and share-repurchase options. One thing is clear from Buffett's previous comments: there's a reason why Berkshire Hathaway hasn't paid a dividend since 1962, and the fact that the company is sitting on a mountain of cash alone is no reason to finally break with a 49-year philosophy and implement a dividend payment.

Here's Buffet in his 1984 annual letter writing on dividends:

"As long as prospective returns are above the rate required to produce a dollar of market value per dollar retained, we will continue to retain all earnings. Should our estimate of future returns fall below that point, we will distribute all unrestricted earnings that we believe can not be effectively used. In making that judgment, we will look at both our historical record and our prospects. Because our year-to-year results are inherently volatile, we believe a five-year rolling average to be appropriate for judging the historical record."