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By Jeremy Glaser | 04-29-2010 11:08 AM

Should Berkshire Pay a Dividend?

Very, very few companies are able to allocate capital as widely or as wisely as Warren Buffett can, says Morningstar DividendInvestor editor Josh Peters.

Jeremy Glaser: Should Berkshire Hathaway pay a dividend? I'm here with Morningstar DividendInvestor editor Josh Peters to see if Berkshire should use some of its legendary cash pile and return it to shareholders. Josh, thanks so much for talking with me today.

Josh Peters: Thanks for bringing up an interesting topic.

Glaser: Certainly, Berkshire Hathaway is known for, among other things, sitting on a big pile of cash that Warren Buffett likes to dole out in different investments. Should one of those investments be paying back a dividend to shareholders?

Peters: Actually, this is a very odd position for me to be in, but I think Berkshire Hathaway may actually be the exception that proves the rule. I don't think that there is any reason yet that Warren Buffett needs to start paying a dividend out of Berkshire Hathaway's earnings.

Glaser: Now, he said, in previous shareholder letters, that he thinks that his future returns are going to be much more muted than his past returns. Why shouldn't he give that money back and let shareholders try their hand at beating the market?

Peters: I think his position is that, as long as he can continue to exceed the return on the S&P as he would measure it internally, then he's continuing to add value for his shareholders.

Retaining earnings and reinvesting them at a high rate of return, even if it's not as high as it had been for Berkshire historically, is still the value-maximizing situation for this one particular company.

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