Berkshire Hathaway (BRK-A) Shares Jump as Dividends May Be In the Works

Berkshire Hathaway Inc. (NYSE: BRK-A) shares are making a strong run today, following speculation that the Oracle of Omaha will reinstate a dividend for shareholders. Barron's reports that Berkshire could be sitting on a $50 billion pile of cash from their core insurance operation alone. Operating profit for FY11 are on track to reach $12 - $13 billion, compared to $11 billion in FY10. The insurance unit held $30 billion in cash as of September 30, 2010. That amount could swell by an additional $20 billion based on some well-timed investments in Goldman Sachs (NYSE: GS), General Electric (NYSE: GE), and other companies made following the economic meltdown of 2008 - 2009. This is promoting speculation that Warren Buffett could return cash to shareholders within 12 - 18 months. Shares are trading for an appealing 1.3x book value (currently at $95,000), just shy of the 1.6x that the stock has traded at on average over the last ten years. Book value might climb to $105,000 per share by the end of 2011, should Berkshire's equity portfolio put in a solid performance. Barron's also notes that no analyst currently has a Buy rating on the stock. Some have said that Berkshire has traded at a premium due in part to the investment selection capability of Warren Buffett. Though valuation has been declining since Buffett has gotten older, some say that that discount is already baked into the price. Though Barron's goes on about recovery in General Re, the solid performance at Geico, and exquisite timing for the acquisition of Burlington Northern, specifically, investments made in Goldman and GE will make a cash infusion soon. Buffett should be receiving $5 billion of 10% preferred from Goldman and $3 billion of 10% preferred from GE. Both are likely to garner a 10% premium in order to get rid of the high-cost preferred. Buffett was also repayed $4 billion from Swiss Re resulting from a very lucrative investment. A dividend of the company should also be modest, probably yielding just 2% or less. Shares have jumped... Read more

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