Should Warren Buffett’s Berkshire Hathaway Pay a Special Dividend Now?

For the last few quarters, Berkshire Hathaway (BRK.B), which is run by the legendary Warren Buffett, has been in the news predominantly for its soaring cash pile and continued stock sales. Things were no different in Q3, and the conglomerate net sold (total sells minus total buys) stocks for the eighth straight quarter.

Thanks to these stock sales, the dividend Berkshire earns from publicly traded companies in which it has invested, plus the cash flow that the various companies in its portfolio generate, Berkshire’s cash pile soared to a record high of $325 billion at the end of September. 

In this article, we’ll discuss whether the conglomerate should consider paying a special dividend with its massive cash pile. But first, let’s dive into the various possible reasons behind Buffett’s relentless stock sales.

Why is Warren Buffett Selling Stocks?

To be sure, this is not the first time that Buffett has been on a selling spree, and Berkshire was a net seller of stocks in both 2020 and 2021. However, back then, he went overboard with repurchasing Berkshire shares, and poured over $50 billion into buybacks between the two years.

In 2024, Buffett repurchased only $345 million worth of shares in Q2, while stopping buybacks altogether in Q3. Though the nonagenarian hasn’t officially said much about his recent decisions, the following could be among the probable reasons:

• Buffett is Worried About a Capital Gains Tax Hike: At the shareholder meeting earlier this year, Buffett indicated that he is selling shares – especially in top holding Apple(AAPL) – to escape any increase in capital gains tax in the future. There is definitely merit in this argument, and Buffett has been trimming stakes in large positions where Berkshire is sitting on massive capital gains. On a similar note, sooner rather than later, the U.S. will need to address the fiscal deficit and grim national debt situation by either cutting spending or raising taxes. Even Fed Chair Jerome Powell talked about an “adult conversation” on the country’s national debt. One of the ways to raise government revenues is by raising capital gain taxes.
• Buffett Foresees a Market Crash: Buffett also seems worried about a market crash, and is not too comfortable with valuations. To be sure, the current market valuations are by no means cheap – at least for a value investor like Buffett, who seems to find even Berkshire shares expensive, based on his recent buyback activity.
• Berkshire is Building a War Chest for an ‘Elephant-Sized Acquisition’: For years, Buffett has been scouting for his “elephant-sized acquisition.” However, given the current valuations and the burgeoning size of Berkshire’s total cash hoarding, I don’t see it as a likely scenario.
• Buffett is Preparing to Hang Up His Boots: At 94, the “Oracle of Omaha” is not getting any younger, and has already named Greg Abel as his successor without specifying when he will retire. It could be possible that Buffett is preparing to hang up his boots, and intends to leave dry powder for his successor.

What is Warren Buffett’s View on Dividends?

Warren Buffett is arguably among the most efficient allocators of capital, and his capital allocation policy also shapes his views on dividends. Simply put, Buffett says that a company should retain earnings if it can create more value for shareholders for every dollar it retains.

In his 1984 shareholder letter, Buffett said, “Historically, Berkshire has earned well over market rates on retained earnings, thereby creating over one dollar of market value for every dollar retained. Under such circumstances, any distribution would have been contrary to the financial interest of shareholders, large or small.”

Meanwhile, Berkshire is now no longer outperforming the S&P 500 Index ($SPX) to the extent it used to do over the last century. Berkshire shares are up around 197% over the last 10 years, while the SPDR S&P 500 ETF(SPY) has delivered 175% for the period. While that's still an outperformance, it's nowhere near the enviable performance Buffett was delivering in the last century.

There are multiple reasons why Berkshire is now not able to beat the index that decisively – including its mammoth size, which makes massive outperformance difficult. Things might not change much in the years ahead, and even Buffett has told investors to only expect marginal outperformance relative to the S&P 500 Index.

Should Berkshire Declare a Special Dividend?

Buffett will go down in history as among the best value investors and capital allocators of all time. His investment tenets will remain the guiding light for investors for years to come. While Berkshire doesn't pay dividends - even as it collects billions of dollars in dividends annually from portfolio companies - in my humble view, a special dividend is something that Buffett could consider now.

The company’s cash pile is now way above what a company of Berkshire's size needs, and is over 30% of its market cap. While that cash is earning a decent return – thanks to the still-high yields on Treasuries, where most of that cash is parked – a special dividend might not be that bad an idea, especially as yields on Treasuries continue to taper down amid the Fed's rate cuts.