An additional $8 million a year in income may not mean much in the scheme of things for Berkshire Hathaway, but it proves once again that Warren Buffett know how to make money, even as he struggles to find ways to spend Berkshire’s over $100 billion in surplus.
With an almost $12 billion paper profit from its conversion of its preferred Bank of America stock to common stock, Berkshire Hathaway is reaping the rewards from bailing out the bank in 2011 during the Great Recession.
The move was one of Buffett’s most astute moves of the past decade.
It’s always nice to triple your investment, especially when the preferred shares had also been earning Berkshire $300 million a year in dividends.
But wait, there’s more, as they say on TV infomercials
In swapping the Bank of America preferred stock for a $11.5 billion common stock profit, Berkshire had to give up the $300 million in annual dividends the preferred stock paid. However, Bank of America just raised its quarterly dividend so the amount that Berkshire now gets annually in dividends will be $308 million.
The 66% increase in the common stock dividend came after the Federal Reserve allowed Bank of America and 33 other large banks to increase their dividends and buy back more stock after passing the most recent stress test in June that was required under the Dodd-Frank Act.
Also benefitting Berkshire, which now owns 6% of Bank of America, is the bank’s decision to increase to $12 billion to its share repurchase authorization.
© 2017 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.