Warren Buffett Dividend Quotes

There are essentially five things public corporations can do with a dollar earned: reinvest in the business, acquire other businesses or assets, pay down debt, pay dividends, and/or buy in shares. Deciding

automatically compound. If you need cash, you can sell stock and pay capital gains tax at a lower rate than a dividend would be taxed.

Buffett’s 1952 memo on Cleveland Worsted Mills mentioned that the stock traded below net current asset value and had “several well-equipped mills.”98 He thought the company had ample earnings to cover the dividend, a view supported by the summary financials found in Table 1. The company paid $8.00 a share out to shareholders, and the last year the company earned below this figure was 1945.99 The income and return on capital figures were a little concerning. Like Marshall-Wells in the first chapter, Cleveland Worsted Mills was coming off the post-World War II highs and falling back to earth, earning a respectable but not extraordinary return on invested capital in 1951. Worsted was a commodity product, with shortages the sole reason for the company’s previously rising income and returns on capital. As the market normalized, the company was unlikely to earn above-average returns on capital in the future.

Micky had another high finance trick up his sleeve: That year, P&R sold coal properties to Reading Anthracite, its wholly owned subsidiary, taking equity and debt in return. Instead of bringing up operating profit, P&R accounted for the proceeds as debt repayment from Reading Anthracite and paid it out as a mostly tax-free distribution. This allowed the operating profits at the subsidiary to be upstreamed to the parent not as a dividend, but rather as repayment of intercompany debt, which in turn allowed the distribution by the parent to shareholders to be treated as a mostly tax-free distribution.166

Buffett’s thesis on Cleveland Worsted Mills was straightforward. The stock sold for below its net current asset value and at a bargain P/E multiple. The worsted manufacturer was consistently profitable and paid a fat dividend. By 1952, having graduated from Columbia and now an employee at Buffett-Falk, Buffett liked the stock enough to write a brief report on it, stating, “The $8 dividend provides a well-protected 7% yield on the current price of approximately $115.”86 The stock had been cheap for some time. Buffett, in fact, had held the stock in 1951, selling at a slight loss as he invested his capital in companies like GEICO and Timely Clothes. Ben Graham also liked the stock, having made the Cleveland firm a 1.5% position in the Graham-Newman fund and including the company in the 1951 edition of Security Analysis in a table titled “Six Common Stocks Undervalued in 1949,” along with Marshall-Wells.87

Greif had a quirk in its share structure that presented a valuation challenge. The company had two shares of stock, Class A and Class B, but only the A shares were publicly traded. The B shares were closely held and not exchange-traded. Like most companies with dual-class share structures, they had differing voting rights. Unlike most companies with dual-class share structures, the classes were entitled to differing dividend distributions and liquidation proceeds. The A shares—the class Buffett bought—had first rights to liquidation proceeds and dividends. Plus, the A shares were entitled to cumulative dividends while the B shares were not. The A shares would only gain voting rights if the company failed to pay the A’s entitled dividend for four quarters. However, the Class B shares received a higher split of additional dividends once the distribution exceeded a certain rate. This made calculating market capitalization figures difficult since there was no price readily available for the Class B shares.

Union Street Railway was a New Bedford, Massachusetts-based bus company. With the equity trading below the net cash on the company’s balance sheet, Union Street was a classic net-net when Buffett bought the stock. This was a small, thinly traded company with a market capitalization below $1 million. The small float meant acquiring stock required a bit of work and persistence by the young, enterprising investor. Like the other stocks discussed so far, it was cheap. But in contrast to the previous investments discussed in this book, this one was actually losing money at the time of Buffett’s purchase. Yet this stock would be a huge winner for Buffett, yielding him a dollar profit worth more than 4.5x the average household yearly income at the time. After accumulating a meaningful stake in the company, Buffett took a trip to Massachusetts to meet with the company’s president. While he did not run a proxy contest or take aggressive action to prompt a capital return, the company paid a substantial dividend shortly after his visit.109 Union Street Railway was an early lesson in how positive changes in capital allocation can lead to windfall profits.

The valuation analysis was simple—anyone could see the stock was incredibly cheap. But it had been traded below net cash for several years before the company distributed cash to shareholders. Returning the cash was the critical factor in driving excellent returns. Assuming Buffett bought the stock in 1954 at $35 and sold in 1957 (having received the $50 per share distribution and a few dollars extra in dividends) when it traded between $20 and $28, he would have more than doubled his money and earned around a 30% IRR.135 The stock didn’t work because it was cheap—it worked because management returned capital to shareholders. The other securities discussed in this book were also incredible bargains—but it took action to drive wonderful returns for shareholders.

it appears the company has a strong competitive position with a favorable long-term outlook, you would next run several dividend discount models that include different growth rates of the company’s owner earnings over different time periods to get a sense of approximate valuation. Then you would study and understand management’s long-term capital allocation strategy. Last, you might call a few friends, colleagues, or financial advisers to see if they have an opinion about your company or, better yet, your company’s competitors. Take note: None of this requires a high IQ, but it is more laborious and requires more mental effort and concentration than simply figuring out the company’s current price-to-earnings ratio.

If the widget company consistently earned a superior return on capital throughout the period, or if capital employed only doubled during the CEO’s reign, the praise for him may be well deserved. But if return on capital was lackluster and capital employed increased in pace with earnings, applause should be withheld. A savings account in which interest was reinvested would achieve the same year-by-year increase in earnings—and, at only 8% interest, would quadruple its annual earnings in 18 years. The power of this simple math is often ignored by companies to the detriment of their shareholders. Many corporate compensation plans reward managers handsomely for earnings increases produced solely, or in large part, by retained earnings—i.e., earnings withheld from owners. For example, ten-year, fixed-price stock options are granted routinely, often by companies whose dividends are only a small percentage of earnings. An example will illustrate the inequities possible under such circumstances. Let’s suppose that you had a $100,000 savings account earning 8% interest and “managed” by a trustee who could decide each year what portion of the interest you were to be paid in cash. Interest not paid out would be “retained earnings” added to the savings account to compound. And let’s suppose that your trustee, in his superior wisdom, set the “pay-out ratio” at one-quarter of the annual earnings.

Legg Mason was a value shop, and its training program emphasized the classic works on value investing, including Benjamin Graham and David Dodd’s Security Analysis and Graham’s The Intelligent Investor. Each day, the firm’s veteran brokers would stop by and share their insights on stocks and the market. They handed us a Value Line Investment Survey of their favorite stock. Each company possessed the same attributes: a low price-to-earnings ratio, a low price-to-book ratio, and a high dividend yield. More often than not, the company was also deeply out of favor with the market, as evidenced by the long period the stock had underperformed the market. Over and over again, we were told to avoid the high-flying popular growth stocks and instead focus on the downtrodden, where the risk-reward ratio was much more favorable.

If this was a business, it would do one of two things with the $3.00 of earnings per share: pay a portion of the earnings to the shareholder (known as a dividend) or retain the money as equity (therefore, the $25.60 of book value would increase). Like

still pay taxes on dividends regardless of the length of ownership.)

To summarize, a great business will show the following characteristics in its financial statements: Earnings show a smooth upward trend Consistent return on equity (ROE) greater than 20% Consistent return on total capital (ROTC) greater than 15% Long-term debt less than 4 times earnings Pays a dividend and/or buys back stock

Security Analysis” by Benjamin Graham, “The Single Best Investment” by Lowell Miller, “The Snowball Effect” by Timothy J McIntosh, “Berkshire Hathaway Letters to Shareholders” by Warren Buffett and Max Olson, “The Ultimate Dividend Playbook: Income, Insight and Independence for Today’s Investor” by Morningstar and Josh Peters.

I’d long opposed my predecessor’s signature domestic legislation, laws passed in 2001 and 2003 that changed the U.S. tax code in ways that disproportionately benefited high-net-worth individuals while accelerating the trend of wealth and income inequality. Warren Buffett liked to point out that the law enabled him to pay taxes at a significantly lower rate—proportionate to his income, which came almost entirely from capital gains and dividends—than his secretary did on her salary. The laws’ changes to the estate tax alone had reduced the tax burden for the top 2 percent of America’s richest families by more than $ 130 billion.

O ponto de partida está em observar a relação entre Preço e Lucro da Ação, o famoso P/L. Quando esta relação está abaixo de 20, podemos começar a prestar atenção na empresa. Abaixo de 15: “Opa! Está ficando interessante!”. Abaixo de 10 pode ser uma oportunidade clara, mas abaixo de 5, preste atenção, pode ser um negócio arriscado. Obviamente, este fator não pode ser observado isoladamente. O P/L deve estar conciliado com uma boa Rentabilidade sobre o Patrimônio Líquido (RPL) ou Return On Equity (ROE). Acima de 10% seria ideal, mas para começar, 8% já seria um bom indicativo. De pouco adianta a empresa ter boa rentabilidade se ela não reparte parte dos lucros com seus acionistas, então o Dividend Yield também deve ser considerado na análise. Para Décio Bazin, autor do livro “Faça Fortuna com Ações”, um DY mínimo de 6% é o recomendável. Vale lembrar que estamos traduzindo Buffett e Munger para a realidade brasileira. Um quarto aspecto fundamental para iniciar uma análise de investimento é observar o grau de endividamento da companhia. Uma empresa que deve mais do que o valor do próprio patrimônio líquido, deve ser evitada. Neste