Dividend Stocks Usually Beat Non-Payers. Berkshire Hathaway Is the Exception.
Dividend stocks have outperformed non-payers over the last 50+ years, delivering an average annual total return of 9.2% compared to 4.2%. However, Berkshire Hathaway, led by Warren Buffett, has been an exception, delivering an average annual return of 19.9% since 1965.
Intelligence analysis by Llama
Dividend stocks tend to be higher-returning and less volatile than non-payers. Berkshire Hathaway, led by Warren Buffett, has been an exception, delivering an average annual return of 19.9% since 1965.
Imagine you have two types of stocks: ones that pay dividends and ones that don't. Over the long term, the dividend-paying stocks tend to do better and be less volatile. Berkshire Hathaway is an exception because its CEO, Warren Buffett, has always focused on finding high-return investments rather than paying dividends.
Analysis
Dividend Stocks Outperform Non-Payers Over the Long Term
Dividend stocks have consistently outperformed non-payers over the last 50+ years, delivering an average annual total return of 9.2% compared to 4.2%. This is because dividend stocks tend to be higher-returning and less volatile than non-payers. For example, dividend stocks have had a standard deviation of 16.7% since 1973, while non-payers have had a much higher standard deviation of 21.9%.
Berkshire Hathaway: The Exception
Berkshire Hathaway, led by Warren Buffett, has been an exception to this rule. Despite not paying a dividend, Berkshire has delivered an average annual return of 19.9% since 1965. This is because Buffett has always been an investment-return-focused capital allocator, rather than a growth-focused CEO. He has never needed to pay a dividend to incentivize growth, and has instead focused on finding high-return investments.
What Will Happen Under Greg Abel?
As Warren Buffett's successor, Greg Abel, takes over as CEO, it will be interesting to see if he shares the same mindset as Buffett. Abel has already started allocating some of Berkshire's massive cash position, including buying back stock and increasing the company's investment portfolio. As long as Abel can find high-return investments, Berkshire should remain an outlier as a rare long-term value creator that doesn't pay a growing dividend.
Key points
- Dividend stocks have outperformed non-payers over the last 50+ years.
- Berkshire Hathaway has been an exception to this rule, delivering an average annual return of 19.9% since 1965.
- Warren Buffett's investment-return-focused capital allocation approach has been key to Berkshire's success.
- Greg Abel's ability to find high-return investments will be crucial to Berkshire's continued success.
If Greg Abel can continue to find high-return investments, Berkshire Hathaway should remain a long-term value creator and continue to outperform the market.
If Greg Abel fails to find high-return investments, Berkshire Hathaway may struggle to maintain its long-term value creation and may underperform the market.
