Riprap wrote: Sun Aug 31, 2025 5:37 pm
secondopinion wrote: Sun Aug 31, 2025 5:16 pm1. We are not Warren Buffett; so, our control of a company is not a matter of concern.
2. Companies actually benefit from dividend income of mostly owned subsidiaries in that there is no tax. It allows them to shift capital around without tax liability. Capital gains are far less favorable and they are taxed at normal rates (and there is no long-term capital gains for them). And note that Buffett does not hold Sees directly, Berkshire does. Buffett holds Berkshire. Berkshire pays no tax on the dividends; Buffett pays no taxes on the capital gains unless he sells. Essentially, Buffett is receiving dividends and not paying taxes on it until he sells.
3. We have the situation in reverse: we are taxed on dividends, and get favorable taxation from capital gains. Selling for capital gains is more efficient than receiving a dividend. As a result, if we want to redeploy capital, then we sell some shares. This is the entire point of having a public market.
4. Why does Warren Buffett discourage dividends for Berkshire itself?
If you reread my post, I state Berkshire owns See’s
As retail investors, BHs are at the mercy of what controlling interests want. Controlling interests want dividends and not loss of control.
Buffett has been consistent in that he has maintained he is able to deploy capital better than average shareholders though it is increasingly more difficult due to its size. I think he even acknowledges that someday Berkshire may pay a dividend.
The point of a public market is to raise capital for a corporation or for founders to cash out. Selling/buying by retail investors is incidental IMO but beneficial in that it provides liquidity.
1. I know you said Berkshire owns Sees. I am making it clear that Buffett does not own Sees. Buffett is using Berkshire as a tax-efficient means to invest in this space; Berkshire does not pay a dividend because the opportunities are still available for investment (and it is tax-efficient not to do so). Once the opportunities dry up, either buybacks, dividends, or internal investment will be eventually required tax-wise for the retained earnings.
2. Loss of control means loss of the tax advantage as well.
Riprap wrote: Sun Aug 31, 2025 5:51 pm
Interesting thought. Vanguard through its funds is a proxy for retail investors. However, due to its size, it and a few other institutional shareholders control most corporations.Why, then, do they not collectively agree to abolish dividends as majority owners if they are so undesirable?
3. Corporations own stocks as well. In their tax perspective, dividends are generally better than capital gains. They might also seek to gain full control at some point; so, they encourage payout to enrich themselves so that is possible.
Not all buyers are retail. And retail has different tax incentives than corporations.
And depending on the retail buyer, they may be indifferent or even prefer dividends from a tax standpoint if they are an individual trader.
Essentially, dividends are contested for tax reasons. I think a lot traces back to this fact of life.
