The stock market is known for its volatility and unpredictability. Almost all the sectors keep seeing ups and downs quite frequently. Sometimes, market factors favour some sectors, due to which prices of those sectors shoot up. Some other times, with the overall downgrade of an economy and strict market forces, prices of certain companies come crashing down. In this scenario, would you not like to invest in a company whose shares are rock-solid, come what may? Irrespective of the bumpy nature of the stock market, one stock has a smooth ride. We are talking about one of the biggest holding companies, the world has ever seen, Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) here. The fact that it is the brain-child of the investment legend, Warren Buffet, speaks volumes about the company’s success. Let us now analyze why this stock is probably the only one that is suitable for all kinds of seasons today.
What makes Berkshire Hathaway special?
The first and foremost advantage of Berkshire Hathaway is that it holds companies of various sectors. Diversification is its strength. Retail services, insurance, banking, pharmaceuticals, investment banking, payment processing, oil and petroleum, technology, manufacturing, fast moving consumer goods, automobiles, logistics etc. are some of the sectors in which Berkshire has its stakes in. Insurance is its primary business. Every year, Berkshire receives billions of dollars through insurance premiums. Then, it invests back into the business for buying newer businesses and purchasing newer stakes in high-yielding dividend stocks, so that investors are rewarded handsomely.
Though the founder, Warren Buffet, is in his eighties now, investors need not panic, as the company is in safe hands. The young, efficient and exuberant leadership team is handpicked by Buffet himself and with such a talented team at the helm of affairs, Berkshire is only expected to grow more and more in the future. The following picture gives an idea of the different businesses that Berkshire is into and the contribution of each, toward the company’s revenues. The percentages pertain to the year 2014.
Currently, Berkshire holds close to 55 subsidiary companies. All of these are managed individually by the respective companies’ management. Berkshire or Warren Buffet, do not have any say in the way these businesses are run. This makes Berkshire probably one of the biggest and only autonomous holding companies existing today. Some of the great dividend stocks that are held by Berkshire are as follows: - Johnson & Johnson (JNJ, Financial), Walmart (WMT, Financial), Exxon Mobil (XOM, Financial), Coca Cola (KO, Financial), General Electric (GE, Financial), International Business Machines (IBM, Financial), Procter &Gamble (PG, Financial), General Motors (GM, Financial), American Express (AXP, Financial) etc.
Why does it not pay dividends?
Of all the great companies that explain why they don’t pay dividends, Berkshire probably has the most reasonable explanation. As per Warren Buffet, there are many ways to return money to investors other than dividends. He believes that by using the profits to invest in newer and bigger businesses, Berkshire provides a commitment of returning a large amount to its investors. Though Berkshire invests in some of the biggest dividend stocks, it doesn’t pay one itself, because it believes that internal possibilities for growth and expansion should be first tried out for re-investing purposes, before actually paying out to shareholders. Through this way, it pays out to investors much more than that they would have received in the form of cash dividends.
Conclusion
Berkshire is considered one of the best holding company stocks today due to these factors. If you are looking for a company that is strong and ethical in its business values, has an efficient leadership team to control the operations, a wide gamut of diversified holdings and incredible returns through its performance in the market, Berkshire Hathaway is the perfect choice for you.
