The fiscal year officially begins when Warren Buffett pens his annual letter. Investors’ ears perk up, markets are watched with anticipation, and brokers attempt to read between the lines in an effort to capitalise from the financial guru’s famed success.
This year’s letter has an overall theme that’s bound to make everyone happy: dividends. In an article from the Wall Street Journal, Serena Ng reports that Buffett’s Berkshire Hathaway expects a number of stocks in Berkshire’s $60 bn-plus portfolio of common stocks to pay higher dividends ‘both as the economy improves and the Federal Reserve eases dividend restrictions that were instituted on banks during the financial crisis’.
According to Buffett’s annual shareholder letter, the largest shareholder gain will likely come from Wells Fargo. Berkshire’s 6.8 per cent stake in Wells Fargo was worth $11.1 bn at the end of 2010, noted Buffett.
In addition to the dividend payout, Buffett said the Fed is likely to lift its current restrictions on banks increasing dividends soon and when that happens, and if Wells reinstates a ‘rational dividend policy,’ Berkshire stands to receive several hundred millions of dollars in additional dividends from just this one stock. Other companies Berkshire owns are also likely to increase dividends, including Coca Cola Company. Buffett said he expects to collect $376 mn in dividends on his 8.6 per cent stake in Coke this year.
Not all is sunshine and smiles in the Berkshire Hathaway world, however. Buffett noted that low interest rates aren’t helping the company, thanks to short-term interest rates and money-market yields remaining at record lows in 2010. With more mergers and acquisitions prepped and ready for closure in 2011, however, Berkshire stands to recoup any losses from the interest rate decline in 2010.
In his letter, Buffett wrote: ‘We will need both good performance from our current businesses and more major acquisitions. We’re prepared. Our elephant gun has been reloaded, and my trigger finger is itchy.’