A Wednesday $2.1 billion deal for a remaining 20% stake in IMC International Metalworking Companies indicates Buffett also remains ready to pounce on opportunities when they present themselves. "It is quite clear that during Warren's lifetime a cash dividend would not be preferable," says Thomas Russo, a partner at Gardner, Russo & Gardner. Russo's observation comes even as Buffett devoted nearly three-pages in Berkshire's 2012 annual letter to conversation on dividends. "It's our job to increase intrinsic business value -- for which we use book value as a significantly understated proxy -- at a faster rate than the market gains of the S&P. If we do so, Berkshire's share price, though unpredictable from year to year, will itself outpace the S&P over time . . . We will stick with this policy as long as we believe our assumptions about the book-value buildup and the market-price premium seem reasonable," wrote Buffett of the firm's policy to reinvest its cash stockpiles instead of paying a dividend. "If the prospects for either factor change materially for the worse, we will reexamine our actions." At the beginning of the shareholder letter, Buffett lamented an underperformance of Berkshire's book value growth relative the S&P 500. He fears the firm's five-year book value growth rate may underperform the S&P 500 for the first time ever. "To date, we've never had a five-year period of underperformance, having managed 43 times to surpass the S&P over such a stretch. But the S&P has now had gains in each of the last four years, outpacing us over that period. If the market continues to advance in 2013, our streak of five year wins will end," Buffett wrote. In 2012, Berkshire's book value per share increased 14.4%, behind the S&P 500's gains of more than 15%. Berkshire Hathaway Shareholder Meeting: Upcoming Live Blog. Dividends will be more about estate planning than Berkshire's performance says Russo of Gardner, Russo & Gardner. "I didn't think that he conclusively supported a case for a cash dividend in that discussion," Russo says of Buffett's letter, and instead highlighted discussion as relevant to Buffett's planned donation of his fortune to the Bill and Melinda Gates Foundation. Regular cash distributions, for instance dividends, would help Buffett's divestiture of his Berkshire holdings qualify as a charitable donation. Russo also downplays comparisons between Berkshire's dividend policy under Buffett and that of Apple under Steve Jobs. "The thing with Apple is they just had such a prolonged period of over-earning and under-investing. Cash just built by the weight of gravity," says Russo. Berkshire, he says is different in that much of its cash is derived from a cautious stance on underwriting insurance risk. Gardner, Russo & Gardner is Berkshire's tenth largest shareholder with a stake of nearly $800 million in the company's Class A shares and over $200 million of Class B shares, according to Bloomberg data. Russo says Berkshire holding's represent about 11% of the firm's assets. Topics such as succession planning for the 82-year old Buffett and cash returns to investors by way of share buybacks and dividends often loom over Berkshire's annual meeting.
"I don't know that Steve Jobs would have ever paid a dividend. At least Berkshire's management has at least conceived it conceptually," says Mayer Shields, a Keefe Bruyette Woods analyst, who covers Berkshire's shares. "I suspect that a dividend is inevitable . . . It is probably more palatable for that sea change to be done by someone else," Shields adds. Under Tim Cook, the successor to Steve Jobs at Apple, the iPhone-maker has transitioned from being dividend-less to the top payer of dividends in corporate America. After issuing $17 billion in debt to finance a dividend boost, Apple is expected to pay out over $11 billion in cash to shareholders this year. The move helps to placate shareholder angst on Apple's dividend policy, however, it's unlikely the company's co-founder Steve Jobs would have accepted such a move. "I don't think there is any chance that Berkshire will pay a dividend while Buffett is running Berkshire and I am happy with that," says Berkshire investor Whitney Tilson of Kase Capital. Tilson notes $1 in capital reinvested into Berkshire's operating subsidiaries or by Buffett and his lieutenants Todd Combs and Ted Weschler is far superior to any after-tax distribution. "Buffett is very likely to be running Berkshire for another five years," Tilson adds. The consensus among analysts polled by Thomson Reuters is for Berkshire Hathaway to report a first-quarter profit of $3.3 billion on revenue of $42.2 billion, compared to earnings of $3.0 billion on revenue of $39.2 billion in the first quarter of 2012. Berkshire Hathaway opened Friday trading at nearly $163,000 a share, a new record for the company.
A dividend or buyback increase would limit Berkshire's ability to cut large deals or quickly jump into multi-billion dollar investing opportunities, when they arise. "We think it is a very strong company from a credit perspective and it is going to remain a strong company through a management transition," Bruce Ballentine, a Vice President in Moody's Insurance team, said in an April interview. Few expect Berkshire to join Apple in the ranks of dividend paying stocks anytime soon. In fact, if Berkshire Hathaway's shares continue to outperform Google ( GOOG) in 2013, Berkshire may end the year as the largest company in America by market cap without a dividend. -- Written by Antoine Gara in New York. Follow @antoinegara