Buffett faces challenge on dividend; Proposal to start Berkshire payouts on agenda at AGM

March 14, 2014 7:40 pm

Buffett faces challenge on Berkshire dividend

By Stephen Foley in New York

A mild mannered accountant from Cincinnati, Ohio, is taking on Warren Buffett in a showdown over whether the veteran investor’s company, Berkshire Hathaway, should finally start paying a dividend.

David Witt, a 52-year-old tax adviser, has submitted a proposal calling for an annual payout, which will be put to a shareholder vote at Berkshire’s famous annual meeting in May. The proposal comes after Mr Buffett himself warned that Berkshire’s size makes it hard for him to find worthwhile new investments – although he said he would continue to search for acquisitions, in a process he calls “elephant hunting”.

But Mr Witt told the Financial Times that some of Berkshire’s cash could be put to better use. “If it has got billions of dollars to spend on other entities, it can afford a few dollars to send back to folks like me,” he said. “It becomes harder to reinvest to produce meaningful returns, and that indicates that now is the time for a dividend.”

Berkshire shares have soared to record highs in the past month, and the company is now worth $303bn, making Mr Buffett’s personal holding of “A class” shares worth $62bn. Since 1965, the company has achieved a compound annual gain in book value per share of 19.7 per cent.

Mr Witt holds 70 Berkshire “B class” shares worth $8,610. The father of two, who has lived in the Midwest his whole life, said he would not be travelling to the meeting in Omaha in person, saying it was too expensive and he would be nervous speaking in front of a crowd that usually numbers more than 30,000 people. “The cost of travelling there would be far in excess of the dividends, if the vote is won, that I would receive,” he said.

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“It has not been in my nature to be a shareholder activist, and this is the first time I have done anything like this in my entire life. I also realise that the odds of winning a majority are stacked against me, but I thought it would be worthwhile for the board of directors to see the opinion of the shareholders.”

Berkshire is opposing Mr Witt’s proposal. “The board of directors does not believe this proposal is necessary in light of the fact that on an annual basis [it] does in fact consider whether or not the corporation should continue to retain all of its earnings,” it said.

Mr Buffett tackled the issue of dividends in his 2012 letter to shareholders, spending three pages setting out why he believed it would be more valuable to retain earnings, or occasionally to buy back shares, as Berkshire has done.

In the company’s latest annual report earlier this month, Mr Buffett reported that book value per Berkshire share, a rough yardstick by which the billionaire judges his performance, increased 18 per cent in 2013, while the S&P 500 rose more than 32 per cent, with dividends. It is only the tenth time that Mr Buffett has trailed the market.