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» Kirk - Buffett's Talk of Dividend Sends Daunting Message

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With all the cash BRKA has, why would you want to buy it now only to have some of that cash returned to you as a dividend that you will pay taxes on? This is an interesting problem. If I owned BRKA due to a recent purchase, ie I didn't have huge gains from holding it for 25 years, I'd only want my dividend to match cash being generated. I'd not want to pay a tax on returned capital.

I like buying small companies with loads of cash because it means they have the resources to survive delays in getting their new products out, but if I am looking to buy a large cap company, I'd sure not want some of my purhase returned to me in the form of a taxable dividend. For this reason, I think BRKA will pay a small dividend and not do a big, one time payment ala MSFT.

http://quote.bloomberg.com/apps/news?pid...

Buffett's Talk of Dividend Sends Daunting Message: Chet Currier

May 6 (Bloomberg) -- If the king of investors can't find anything worth buying, where does that leave the rest of us?

The question has been hard to avoid ever since the annual meeting last weekend of Berkshire Hathaway Inc., at which Chairman Warren Buffett once again lamented a dearth of investment opportunities.

Berkshire and its predecessor companies haven't paid a dividend since the 1960s, when Buffett was just getting started on his celebrated financial career. He has always said Berkshire wouldn't pay a dividend as long as there was a promising way for him to put the money to work.

Now, with cash on hand ballooning to $44 billion at last count, he says Berkshire might have to consider it.

``If we sit here a few years from now and we have not successfully deployed more cash, I think the burden of proof will have shifted dramatically,'' Buffett told the assembled multitudes on their annual pilgrimage to Berkshire's hometown of Omaha, Nebraska.

What's wrong with starting a dividend? Seems like a fair enough way to reward aging investors who have patiently stuck with Berkshire all these years, not excluding the 74-year-old Buffett himself.

Gates Opened

For a precedent, dividends have been paid since 2003 at Microsoft Corp., whose chairman, Bill Gates, is the only person ahead of Buffett on the Forbes billionaire list. Gates just happens to be a new member of Berkshire's board.

The thing is, Berkshire stands apart from Microsoft and most other industrial companies. It has long been viewed as a kind of super hedge fund or mutual fund, run by a legendary leader able and willing to find hidden gems in any corner of the markets.

Buffett buys companies whole or parts of them through stock purchases. He has bought bonds when they suited him, and right now he has a big bet against the dollar in foreign exchange. When he says he is running out of ideas, it's certainly not for lack of knowing where to look.

Buffett outlined his basic view of dividend policy in his 1984 letter to shareholders: ``Historically, Berkshire has earned well over market rates on retained earnings. Under such circumstances, any distribution would have been contrary to the financial interest of shareholders.''

Overabundance

As long as the company thought it could keep doing that, he went on to say, ``We will continue to retain all earnings.''

Buffett faces a problem born of his own success -- a mountain of money that gets harder to put to work the larger it grows. An insurance acquisition of ``under $1 billion'' on which he says he is working will barely dent the pile.

With everything that makes him extraordinary, Buffett's dilemma is no different from a problem that faces all investors collectively. Twenty-five years of a financial boom have attracted so many people into the investing game that the naturally occurring opportunities may have been all but picked clean.

In many fields of endeavor, this kind of thing isn't an issue. No matter how many books flood the publishing market, for instance, there is no theoretical limit on how many good ones remain to be written. The field is as big as the human imagination.

Different Deal

In gambling, a casino can always put in more slot machines and blackjack tables. Investing doesn't work that way, since investments must ultimately be based on entities of real or potential economic value -- the supply of which, alas, isn't boundless.

A strong case can be made that the too-many-investors- chasing-too-few-good-investments bind is the biggest single negative hanging over the markets nowadays.

It wouldn't get much better if Berkshire paid a dividend instead of investing its entire cash horde. Some of the payout would go to income taxes -- although, if recent U.S. tax-law changes remain in effect, no more on a percentage basis than if the wealth had been distributed via capital gains as investors sold Berkshire shares.

Once the tax bill is settled, Berkshire would have transferred the problem of what to do with the money from itself to its shareholders, again including Buffett himself.

That's the most dispiriting part of the message a Berkshire dividend would send: Buffett and his cohort Charles Munger, considered among the best financial minds anywhere, would be attesting that they had given up on finding a good use for the money. So here, shareholders, your turn to try.

To contact the writer of this column:
Chet Currier in New York ccurrier@bloomberg.net

Last Updated: May 6, 2005 00:08 EDT

-- posted by Kirk

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» axolotl - Re: Buffett's Talk of Dividend Sends Daunting Message

I agree - the dividend talk is a negative for potential buyers like me. However, I think Buffett will have a very good year despite a lower q1 no. and I think the book value continues to grow sort of like pressure building in a boiler - one day the stock will spike upward. I said years ago that he should buy Canada and I was at least half serious - it is right under his nose - those Canadian oil co.s should be gone over by someone trusted by Buffett and there has to be at least a few billion in buys. BTW, Kirk, how has your newsletter performed so far in volatile 2005?

-- posted by axolotl

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» Kirk - Re: Re: Buffett's Talk of Dividend Sends Daunting Message

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In response to Re: Buffett's Talk of Dividend Sends Daunting Message posted by axolotl:

BTW, Kirk, how has your newsletter performed so far in volatile 2005?

Down YTD but beating its benchmark. I think I still have 130% over BRKA since 12/31/98 too! Send me an email if you want more info using the "Free Issue of my Newsletter" link below.

-- posted by Kirk

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» Kirk - “Cheeseburger in Paradise” Cousins

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Nice photos at the original source:
http://www.fortwayne.com/mld/journalgaze...

Posted on Sun, May. 08, 2005

Sister takes trip to Buffett line

Search for genealogical link between singer Jimmy and financier Warren spans 20 years
By Ethan Smith
Wall Street Journal

Even Jimmy Buffett’s most ardent devotees – the margarita-sipping superfans who call themselves Parrot Heads – might not have heard one 2003 composition by the troubadour of laid-back island living.

“I bought Berkshire way back when it was cheap,” he sang in the ditty, strumming softly on an acoustic guitar. “I bought Berkshire way back then, and I do nothing but keep ... it.”

A two-line ode to the stock of Berkshire Hathaway Inc., which currently trades at more than $84,000 a share, might seem out of character for the singer of “Margaritaville” and “Cheeseburger in Paradise.” Jimmy Buffett is indeed a longtime Berkshire shareholder, and his short composition was played on videotape at Berkshire’s annual meetings in 2003 and 2004.

In fact, the singer also has been friends with Warren Buffett, Berkshire’s 74-year-old chairman and chief executive, for more than 20 years, both men say. They don’t see each other often, but they regularly talk on the phone about business. They have even performed music together. And they plan to collaborate again at a New York charity dinner for Conservation International Tuesday night.

Besides sharing a surname, the two men have long suspected that they also share a common genetic history. “Warren leaves messages for ‘Cousin Jimmy’ and always has,” says the singing Buffett, 58. “I’ll take it from him.” The singer calls the financier “Uncle Warren.”

No one knows for sure. The two are only now coming to the end of a two-decade process of determining how or whether they are actually related.

The attempt to link the two strains of Buffettmania has been spearheaded for more than 20 years by Doris Buffett, Warren’s 77-year-old sister.

“I’ve spent a lot of time and energy trying to connect up the two families,” says Doris Buffett, who heads a charity for battered women called the Sunshine Lady Foundation Inc. Despite years of research, she has been unable to establish a conclusive link. She says she is considering DNA testing.

Jimmy Buffett, Warren Buffett and Doris Buffett act more or less as though they were long-lost relatives. Doris Buffett has been a guest of the singer at performances. Her brother says he has never been to a Jimmy Buffett concert, but he has seen one on television.

Warren Buffett last May played ukulele and sang “Five Foot Two, Eyes of Blue (Has Anybody Seen My Gal?)” at the opening of Jimmy Buffett’s Cheeseburger in Paradise restaurant in Omaha, Neb., where Warren Buffett has lived most of his life.

Jimmy Buffett says he chose Omaha as a location for his restaurant – one of 14 in the chain – because it is a midsize city, but also because of Uncle Warren.

“He’s such a cheeseburger freak,” Jimmy Buffett says. “He said, ‘If you put one in Omaha, I’ll buy the first cheeseburger.’ ” Warren Buffett says he is still a regular customer.

The friendship between the two Buffetts dates back to the early 1980s, when Doris Buffett sent letters to 116 other Buffetts around the United States seeking information about her family’s history.

One of the letters landed on the desk of Jimmy Buffett, where it sat, unanswered, for two years before Doris Buffett finally heard back from the singer’s office. Then, the two began corresponding, and in 1983 arranged to travel together, along with the singer’s parents, daughter, nanny and others, to Norfolk Island – a remote speck of land in the Tasman Sea, between Australia and New Zealand, where there happens to be a large population of Buffetts.

Not long after they got back from the South Pacific, Doris Buffett introduced the singer to her brother at a lunch in Washington. It was that meeting that inspired Jimmy Buffett to buy 15 shares of Berkshire Hathaway stock in 1989, he says, adding that he has been buying it regularly ever since. How much does he own? “A lot,” he says with a laugh. The share price has risen by about $75,000, or more than 800 percent, since the year he first bought it.

So far, Doris Buffett has traced her family’s roots to the late 17th century on Long Island, where a John Buffett was married in the town of Huntington, in 1696. Meanwhile, she says, the furthest she has gotten with Jimmy Buffett’s family is the town of Rose Blanche, on the southern shore of Newfoundland.

“Trying to relate the two families has been a little more problematic,” she says, owing to hazy recollections, wishful thinking and murky records. “There are plenty of miscellaneous Buffetts.”

The strongest evidence she has providing a link between the families is a photograph of a family of Canadian Buffetts who trace their ancestry back to the same part of Canada as Jimmy Buffett does. One of the men in the picture, Doris Buffett says, bears a striking resemblance to her father, Howard H. Buffett, the late Republican Nebraska congressman of the 1940s and ’50s. Still, there is no documentary evidence that the person in the photo is related to either Warren Buffett or Jimmy Buffett.

-- posted by Kirk

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» Kirk - Berkshire Hathaway Cuts Ties With Ex-Exec

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I like how they don't fool around and let people go who don't cooperate with the SEC.

Berkshire Hathaway Cuts Ties With Ex-Exec

http://news.yahoo.com/news?tmpl=story&u=...

Fri May 20, 8:37 PM ET

Berkshire Hathaway Inc. has severed ties with a former chief executive of its General Re Corp. subsidiary after he invoked the Fifth Amendment during questioning by federal officials on Friday.

Ronald E. Ferguson had been a consultant for General Re and other Berkshire affiliates since stepping down as the reinsurance company's CEO in 2001, Berkshire Hathaway said in a news release.

The holding company headed by billionaire Warren Buffett announced it had terminated Ferguson's consulting services Friday following his questioning with the Securities and Exchange Commission and the Department of Justice.

Regulators are conducting an investigation into a transaction between General Re and insurer titan American International Group Inc. that allowed AIG to inflate reserves against future claims — an important measure of an insurer's strength. The probe led to the March resignation of Maurice R. "Hank" Greenberg, AIG's longtime chairman and chief executive.

Officials at Berkshire Hathaway were not immediately available for comment Friday.

-- posted by Kirk

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» Normxxx - Buffett buys PacifiCorp

Buffett buys PacifiCorp for $5.1 billion

By Sudip Kar-Gupta | 24 May 2005

LONDON (Reuters) - A unit of billionaire U.S. investor
Warren Buffett's Berkshire Hathaway Inc (NYSE:BRKA ) has agreed to buy U.S. electricity firm PacifiCorp for $5.1 billion from British utility Scottish Power Plc (SPW.L).

The acquisition is Buffett's largest since he bought reinsurer General Re Corp in 1998.

Under it, MidAmerican Energy, his Des Moines, Iowa-based unit, will assume $4.3 billion of net debt. PacifiCorp provides services to 1.6 million customers in six western U.S. states.

Scottish Power, which also posted annual earnings ahead of market forecasts despite PacifiCorp missing its targets, said on Tuesday it would return about $4.5 billion of the sale proceeds to shareholders, sending its shares up as much as 9 percent to 479-3/4 pence, their highest level since September 2001.

Some analysts also said the sale could turn Scottish Power into a takeover target.

"Rump ScottishPower is likely to be an attractive takeover target for its larger UK competitors," brokers Cazenove said in a research note seen by Reuters. Traders in London and Frankfurt also relayed gossip that Germany's E.ON (EONG.DE) might be interested in the remainder of Scottish Power.

At 1200 GMT, Scottish Power shares were up 7.1 percent at 473 pence, the biggest riser on the FTSE-100 index (^FTSE - news).

Buffett, the world's second richest person according to Forbes magazine, had lamented his inability to find ways to spend Berkshire's $46.7 billion of cash. Best known for its insurance holdings, Berkshire also owns such companies as ice cream maker Dairy Queen and underwear maker Fruit of the Loom.

"We are excited to be making this long-term investment, through MidAmerican, in the premier energy company in the West. PacifiCorp is a great company with outstanding assets," Buffett said in a statement.

He later told a news conference he hoped to buy more energy assets over the next decade. MidAmerican already owns British utility CE Electric UK.

ING analyst Fraser McLaren said investors would welcome the sale of PacifiCorp.

"We believe the market will react positively to this news which brings to an end the persistent uncertainty regarding PacifiCorp," he said in a research note.

PACIFICORP'S PROBLEMS

The utilities sector has always been an attractive one for predatory investors, as companies in the sector are profitable and have strong cash-flows.

Scottish Power bought PacifiCorp in 1999 for around $10 billion, and the British company said the sale would lead to an impairment charge of 927 million pounds ($1.7 billion).

The U.S. electricity producer accounted for about 50 percent of overall earnings but has recently suffered from bad weather and plant outages.

On Tuesday, Scottish Power said PacifiCorp had operating profit before goodwill amortization and exceptional items for the year ended March 31 of $914 million. Its target had been $1 billion.

The company decided it was better to sell PacifiCorp than continue investing in the business to improve returns.

"This was proving to be a difficult year for PacifiCorp," Scottish Power Chief Executive Ian Russell told reporters, adding that the sale was not expected to lead to job cuts.

Scottish Power also reported that pretax profit before goodwill and exceptional items for the year ending March 31 rose 10 percent to 1.015 billion pounds, the first time the company had made a billion-pound profit.

Earnings per share (EPS) rose 10 percent to 40.22 pence, ahead of market forecasts, and the total dividend rose 10 percent to 22.50 pence.

CEO Russell said the sale of PacifiCorp could take between 12 and 18 months to complete, and added it was too early to say how Scottish Power would return the proceeds to investors.

PacifiCorp was originally meant to have been a key driver of earnings growth for Scottish Power.

Russell said that once the company had sold the unit, around 70 percent of its earnings would come from its infrastructure division, which owns and manages British power networks.

Investment banks UBS and Morgan Stanley advised Scottish Power on the PacifiCorp sale. Houlihan Lokey Howard & Zukin advised MidAmerican. (Additional reporting by Steve Slater, Alison Tudor and Mat Robbins in London, Nieck Amerlaan in Frankfurt, Jonathan Stempel in New York) ($1=.5468 Pound)

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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» Kirk - Re: Buffett buys PacifiCorp

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In response to Buffett buys PacifiCorp posted by Normxxx:

He later told a news conference he hoped to buy more energy assets over the next decade.

I wonder if he is looking to make a private offer for CalPine's energy generation plants. They are a perfect target for a Buffett type shark attack. They are struggling from a heap of debt (plus a small law suite for starting a fire that burned down some of our family cabins...) and there is talk they will sell assets to pay down some of their debt.

-- posted by Kirk

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» Normxxx - Re: Re: Buffett buys PacifiCorp

In response to Re: Buffett buys PacifiCorp posted by Kirk:

There's still a heap of value in the utilities area, especially if you know what you're doing.

There's still Mirant to pick over...

-- posted by Normxxx

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» Kirk - Warren Buffett Says He's a `Bull' on British Pound

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Warren Buffett Says He's a `Bull' on British Pound (Update5)

Excerpt:

May 24 (Bloomberg) -- Berkshire Hathaway Inc. Chairman Warren Buffett, said the British pound, headed for a second consecutive monthly decline, may be poised to resume a three-year rally against the dollar.

``I am a bull on sterling versus the U.S. dollar,'' he said on a teleconference with reporters in London after MidAmerican Energy Holdings Co., a company controlled by Berkshire, agreed to buy PacifiCorp for $5.1 billion in cash. ``This may well continue despite the movements of the last few weeks.''

The pound is down 4 percent against the U.S. currency this month as the Bank of England cut its growth forecasts, an industry report showed retail sales fell the most in a decade and a gauge of house prices dropped for a second month.

and

Buffett and Bill Gates, chairman of Microsoft Corp., are among investors who have bet against the dollar. Buffett's firm made $1.63 billion on foreign currencies in the fourth quarter, when the dollar fell to a record $1.3666 per euro. He began betting against the dollar in 2002 on concern widening U.S. trade and budget deficits would erode its value.

<img width=520 height=301 src=http://stockcharts.com/def/servlet/Sharp...>

<img width=520 height=301 src=http://stockcharts.com/def/servlet/Sharp...>

-- posted by Kirk

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» axolotl - Re: Warren Buffett Says He's a `Bull' on British Pound

He gives no explanation. It appears the pound is tracking the Euro vs. the dollar, so why is the pound special when the British economy is running deficits similar to the USA? He lost in the first qtr. on his currency bet. France has voted against the Euro Constitution and that has affected the currency markets. Templeton announces that he owns Kia and the stock kicks up 50% in 3 months. Buffett announces a pound play and expects a similar self fulfilling prophecy? It is good to be a stock market Icon that can cause moves that help profits.

-- posted by axolotl

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