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Is a Berkshire Dividend Coming?

With his cash hoard growing, Warren Buffett opened the door to a cash payment to shareholders at this year’s annual meeting.

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Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. We just finished up the Berkshire Hathaway annual meeting. I'm here with the analyst Josh Aguilar. He's an equity analyst at Morningstar. He's also a longtime Buffett aficionado. 

John, thanks joining me.

Josh Aguilar: Thank you so much for having me.

Glaser: So, the second half of the meeting, one of the big stories was that Warren seemed to hint that a dividend might be a possibility in the future.

Aguilar: That's right.

Glaser: Is that real? Do you think [Berkshire Hathaway] really could pay a dividend?

Aguilar: Well, so, they've got about $96.5 billion on the balance sheet right now. We estimate it's about $55 billion of dry powder for cash. The real test is, can you create a dollar more for every dollar retained? Right now, that's a lot of cash. It's burning a hole in their pocket, and they have not been able to find a good deal lately. So, it's a real possibly. If you look at the 2014 Annual Report on Page 36, they actually go through an analysis saying, "We can't generate any excess returns for maybe 10 to 20 years from now," and it looks like that time frame is actually shortening. So, it looks like it's more and more of a possibility.

Glaser: There did seem to be a palpable sense of frustration about not being able to deploy this capital.

Aguilar: Right, right. That's right.

Glaser: Is it just the market we're in or is it just too much money?

Aguilar: Well, actually, I think it's just the size, really. I mean, theoretically, interest rates make an environment where stocks aren't terribly expensive. But really interest--the size that Berkshire is at right now makes it very difficult to find the deals that they normally could have, but many years back.

Glaser: One way to get that cash deployed would be to have Todd and Ted manage it, but he seemed to be hesitant to increase their portfolio. Why do you think that is?

Aguilar: I think, again, it's a size issue. Right now, as I think he said, they're happy right now with what they're able to do. They're able to find certain compelling opportunities. So, I think the size that Buffett has limits his universe of investments. So, I mean, you're looking at plays like, lately like Apple, which generate a ton of free cash, but it's hard to say, like, can it be a free cash flow generator and still grow? It's the largest market cap-weighted stock in the entire universe. So, that makes it very difficult, I think.

Glaser: Josh, thanks for talking with me.

Aguilar: Thank you so much for having me, Jeremy. I appreciate it.

Glaser: From Morningstar, I'm Jeremy Glaser. Thanks for watching. 

Joshua Aguilar has a position in the following securities mentioned above: BRK.B. Find out about Morningstar’s editorial policies.