Why a Holding Company’s Dividend Yield Cannot Be Read from Its Holdings
Summary
The discussion asks whether Berkshire Hathaway’s hypothetical dividend yield could be estimated as a weighted average of the dividend yields of companies it owns. The answer says there is no fixed calculation because the board chooses whether to distribute a dividend and how much to pay. A payout could therefore vary widely, including being zero, and depends on the parent company’s own decisions and finances rather than simply the dividend yields of its portfolio companies.
The response notes that holding company income can include dividends, proceeds from selling businesses, short term investments, and loans. It also cautions that preferred shares or other special arrangements may produce income unlike ordinary shares of the same companies. It recommends reviewing filings and annual reports to understand earnings. These are qualitative observations rather than a valuation formula; the answer’s speculation about Berkshire’s future payout policy is an opinion, and does not establish a yield estimate.
Key ideas
- A holding company’s dividend yield depends on its own board-approved payout, not just the yields of its investments.
- Income may come from asset sales, short term investments, lending, and dividends.
- Preferred shares and special investment terms can make received income differ from common stock dividends.
- Company filings and annual reports can clarify earnings and sources of income.
Tags
Full text
# How to calculate yield from holding companies like BRK? # How to calculate yield from holding companies like BRK? We know Buffett's Berkshire doesn't pay dividends. But Berkshire owns many companies that pay dividends, say Wells Fargo and BofA. If one day, BRK decides to pay dividend, would their yield be around weighted average of owned companies' yield (more or less at that range)? In general, how is holding companies' dividend yield is calculated from their investment? ## Answer by raptor22 (score 1) https://quant.stackexchange.com/a/48913 My answer isn’t really “quant”. I don’t think that “there is a way” to do it. The board of directors has to decide on the dividend as well as the amount of the dividends. So this hypothetical number can be anywhere between 0 and (almost) the company’s earnings. For a company like Berkshire, incomes can come from underlying holdings’ dividends as you notice, but could also as a result of selling companies as well as from short-term investments and loans (as an example, I believe that they invest cash, which is currently a substential amount of there portfolio, in short term treasuries). Be also careful because Berkshire often gets “preferred shares” and other very special and rewarding deals. So the dividends they perceive is usually higher than that of the common stocks of the underlying companies in that holding. I am not an expert in accounting standards, I recommend that you read the fillings as well as the annual report. It should give you a clear view about the earnings. However, as long as Warren and Charlie will be in charge, I doubt that they will give any dividend because they rightfully believe that they can do better than others with it. If they would give a dividend, my opinion is that it would really signify that there are no good opportunities for value in the market (even considering buying back there own stock) and that cash has become a liability (could be the case if negative rates were to come in the US, Warren has discussed that about insurance companies that they own in Europe where rates are negative and they don’t know what to do with that excess cash).
Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.