October 3, at am - Reply. If I read one, it's because the funny pages weren't available. They could be stealing, sleeping with each other, etc. You can never predict zold markets will do. My wife and I just turned 54 and have built a portfolio of over 2m all on my own mixed with roths, ks,stock and mutual funds.




Buffett's letter explains why Berkshire shouldn't pay dividends, and now his letter explains why dividends received by Berkshire are a different matter. Using somewhat simplified assumptions, Buffett explained in that selling off a percentage of shares was a better strategy for long-term total return and lower taxes. The letter points up the very major difference in tax treatment of dividends and capital gains for holdings by corporations versus individuals.

A closer look buffett sold put options dividends why it makes sense for Buffett to hold American Express or Coca-Cola even in decline for reasons that don't apply to you and me. Buffett's fluid and calculated approach reinforces the view that one must always be a total return investor and be wary of copycatting Buffett or over-emphasizing dividends.

Buffett hates dividends, right? When it comes to dividends, he is Ebenezer Scrooge. Just try to get a dividend out of him. Whenever you ask him about it he comes up with some complicated argument to brush you aside. Is he like the dragon in Beowulfjust sitting there in his cave and guarding his gold? At the same sividends, Buffett loves dividends. As long as they are coming in his direction, they are fine.

It's like he has servants looting the countryside and bringing him further buffett sold put options dividends of gold. As CEO and chief investment officer of Berkshire Hathaway NYSE: BRK. B he has put together a portfolio mainly of dividend-paying stocks, and investors right here on the SA site constantly tout one or more of them as "Buffett dividend stocks" to be bought with the imprimatur of the Great One.

In the Oracle's personal operating manual, are dividends a good thing or a bad thing? I got an interesting response to say the least a few months back from this SA article saying that dividends could be either, but were sometimes - not always or for buffett sold put options dividends, but in my case for sure - more a thing to be avoided than a thing to be sought. It was as if I had invaded a home and broken the household gods.

I was naturally very interested in the portion of this year's annual shareholder letter in which Buffett cleared up the apparent contradiction in his views. So which is it? Love dividends or hate dividends? Let's start by going back to the s hareholder letterin which he explained why it made sense for Berkshire not to pay dividends.

Buffett is resolute about not letting Berkshire pay dividends. Those who seek venal motives sometimes attack this policy as his way to continue paying a lower rate in his personal taxes than his cividends. This would not be nice behavior for someone who espouses the viewpoint that the tax code is unjust. Buffett should certainly have well-thought-out reasons that apply not just to himself but to all shareholders.

It turns out that he does, and he shared them in the shareholder letter. Buffett feels that the best uses for Berkshire cash are, in order: 1 reinvestment in present businesses, 2 accretive acquisitions bufett new businesses, 3 buybacks of Berkshire forex live futures quotes when it is available at the right price and beats other options, and 4 doing nothing while waiting for better opportunities.

Now let's hear his own words bucfett the subject of paying dividends. Skim if you like. I'll summarize at the end: And that brings us to dividends. Here we have to make a few assumptions and use some math. The numbers will require careful reading, but they sopd essential to understanding the case for and against dividends. So bear with me. You would like to buffeth the two of us shareholders receive one-third bufett our company's annual earnings and have two-thirds be reinvested.

That plan, you feel, will nicely balance your needs for both current income and capital growth. There is an alternative approach, however, iptions would leave us even happier. Under this scenario, we would leave all earnings in the company and each sell 3. Call this option the "sell-off" approach. Because we would be selling shares each year, our percentage ownership would have declined, and, after ten years, we would each own Moreover, on the plus side, there also is a possibility that the assumptions will be exceeded.

If they are, the argument for the sell-off policy becomes even stronger. Over Berkshire's history - admittedly one that won't come close to being repeated - the sell-off policy would have produced results for shareholders dramatically superior to the dividend policy. Aside from the favorable math, there are two further -and important - arguments for a sell-off policy.

First, dividends impose a specific cash-out policy upon all shareholders. Ourshareholders cover the waterfront in their desires for cash. It is safe to say, however, that a great many of them - perhaps even most of them - are in a net-savings mode and logically should prefer no payment at all. The sell-off alternative, on the other hand, lets each shareholder make his own choice between cash receipts and capital build-up.

Of course, a shareholder in our dividend-paying scenario could turn around and use his dividends to purchase more shares. The second disadvantage of the dividend approach is of equal importance: The tax consequences for all taxpaying shareholders are inferior - usually far inferior - to those under the sell-off program. Under the dividend program, all of the cash received by shareholders each year is taxed whereas the sell-off program results in tax on only the gain portion of the cash receipts.

So that's Buffett's case against Berkshire paying dividends. Long story short: If you accept the somewhat simplified assumptions, the math says buffettt do better selling off the necessary portion of your holdings to match a dividend. You also have the flexibility to sell off more or less as you need, or nothing at all. And the tax outcome is better, often much better. I heartily endorse this view. One of my many purposes for holding Berkshire is to have my part of it compound unimpeded by tax events requiring donations to the IRS.

Buffett critics like to make a point out of this seeming paradox. Why does Buffett like to receive dividends from his largest portfolio holdings - in approximate present order: Kraft Heinz NASDAQ: KHC not on the newsletter list because a control situationWells Fargo NYSE: WFCCoca-Cola NYSE: KOApple NASDAQ: AAPLIBM NYSE: IBNAmerican Express NYSE: AXPand if his calls are exercised, Bank of America NYSE: BAC.

Wouldn't he have Nigeria Were insulated from Nigerias forex problem says same wish for his own investors to receive such dividends from Berkshire Hathaway? It turns out that there is a very good reason for Buffett's different dividenes of dividend payments for stocks held within Berkshire. In this year's shareholder letter he finally decided to clear it up once and for all.

It's all about point of view. Your opinion about dividends depends upon where you sit and where the dividend and the stock paying it are located. This difference of point of view has important implications for investors trying to piggyback Berkshire's holdings or justify any of the above stocks which they may hold solely on the grounds that Buffett, through Berkshire, is happy to hold them. But here's the corporate math. The tax on dividends buffetf from domestic corporations, however, is consistently lower, though rates vary depending on the status of the recipient.

The rationale for the low solx taxes on dividends is that the dividend-paying investee has already paid its own corporate tax on the earnings being distributed. So that's the heart of it. Dividends are taxed very favorably inside a corporation buffett sold put options dividends Berkshire. Capital gains, on the other hand, are taxed favorably for individuals but much less favorably within corporations where the rate solf the same as for ordinary income.

Guess why Buffett is reluctant to sell Coca-Cola or American Express? Berkshire's positions in Coke and Amex have tons of embedded capital gains with future so,d on the books as liabilities, by the way, which may decrease somewhat under the most likely upcoming changes in the corporate tax rate. Think about what he gains and loses by selling Coke. Selling under the present tax law, Berkshire loses almost a third of capital invested and annual dividends received. No wonder he walks around like a billboard with a Coke in his hand.

I am not a communicant in the cult of dividends. Most of my holdings pay them, but I would describe myself as firmly in the camp of total return investing and pay careful attention to taxes, as does Buffett. Buffett's apparently contradictory views resolve perfectly if you take that buffett sold put options dividends. What does that tell us buffett sold put options dividends the nuances of dividend investing?

One thing it tells me is that it's risky to justify buying a stock just because it has a seemingly safe dividend. It is especially risky to point bjffett the presence of a stock in Berkshire's portfolio as a justification for buying or holding. Charlie Munger recently expressed some doubts about American Express. He basically said that the payments business was becoming very hard to analyze. What he suggested was that American Express might prove to have an imperiled business model.

Maybe the loss of Costco was an indication that its historic pricing power was declining in a commoditized business under attack from new methods. Buffett has said, though, that he has no plans to sell it. Similar to the situation with KO, Berkshire loses almost a third of its holding to taxes if dividwnds sells, along with the same percentage of the dividends. Calculating carefully, it is worth it for Berkshire to keep American Express even if it is in decline we'll see if a new corporate tax rate changes that equation.

It's not worth it for buffett sold put options dividends and me. Ditto Coke, another slow-growth or no-growth company whose once wonderful business model is much less wonderful today. And ditto, probably, Kraft Heinz. Buffett's deal was great, yours and mine not so much. Is there a larger takeaway? I sort of think there is. Dividend investors tend to look around and compare dividend stocks to one another. If Coca-Cola and Kraft Heinz are okay, why not McDonald's NYSE: MCD?

Buffett's apparent imprimatur produces ripples like a stone dropped in a pond. I would be very cautious about naively appropriating the halo effect of his holding major dividend stocks in his portfolio, and also about projecting ripples from that halo effect onto similar stocks. A confession: I once did a piece suggesting that Buffett should sell Coca-Cola without looking closely bufftet at the math.

I turned out to be right for you and me, but Buffett obviously thinks circles around me. In a future piece I will examine bufett Berkshire's no-dividend policy makes it a highly efficient retirement investment. Meanwhile please comment and punch holes in Buffett's view and mine. As always, I promise to read and respond. I wrote this article myself, and it expresses my own opinions.

I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article. Vuffett Buffett Resists Calls For Berkshire To Pay Dividends Buffett is resolute about not letting Berkshire pay dividends. Both assumptions also seem reasonable for Berkshire, though certainly not bufett.

So OK, dividends are bad. Then why does Buffett seem to like them so much when Berkshire receives them? Why Buffett Loves For Berkshire To Receive Dividends Buffett critics like to make a point out of this seeming paradox. I'll again let the letter speak for itself: But here's the corporate math. And that's our tax lesson for today. A Very Important Takeaway I am not a communicant in the cult of dividends. Disagree with this article?

Follow Jim Sloan and get email alerts.




Dividend Stocks – Can You Buy Stock Just For The Dividend? - Show #062


Warren Buffett 's grandson, the former Secretary of the U.S. Department of Agriculture and the Prince of Monaco all have a shared interest in KDC Ag, a small but. Investing like Warren Buffett is neither an art nor a science. Rather, it is a study of human nature and a willingness to follow a mundane path. As the Oracle of. Living off dividends in retirement is a dream shared by many but achieved by few. In today’s environment marked by rising life expectancies, extremely low bond.