Looking at dividends, I think the analysis should be based on the marginal dollar added to the cash pile versus the average dollar in the cash pile.

I am assuming the following:

1. Over the next 10 years, BRK will earn $500B. Current earnings per year plus 7% nominal growth.

2. $100B of stock will be sold due to valuations exceeding prudent levels e.g. Apple or the company no longer fits the required profile. Note is not net, just sales.

3. There is currently $100B excess cash above operational needs.

Based on these assumptions, BRK has to allocate $70B per year for the next 10 years to get the cash level down to $300B.

Buy backs over the last 10 years average $8B per year, going forward say $10B per year which leaves $60B per year.

My opinion, based on previous BRK actions, it is unlikely that $60B per year on average will be deployed. As such, the cash will continue to increase and the marginal rate of return on the cash increase will be 4% less 15% for corporate tax which equals 3.4%. After 10 year's, the $1 will be $1.4.

Alternately, the $1 could be issued as a dividend. I would receive $0.7 after tax. Then invested in a broad basket of stocks which will grow at a nominal value of 9% (slightly lower than 60 year long term average). The $0.7 will grow to $1.66. I will then pay 20% tax on the capital gains and have $1.47.

Seems to me that it is better to get a dividend than have BRK hold the marginal dollar in short term treasuries.

Aussi