No. of Recommendations: 12
Berkshire paid $9.8 billion, collected $6.3 billion in dividends, AND still has an asset worth $8.8 billion...
It should be noted that the dividends that Berkshire received were not taxed at Berkshire, so that $6.3b is net. (Unless I have misunderstood equity method accounting yet again, which is certainly possible)
All of Berkshire's share of KHC's net earnings after tax are reported in net income at Berkshire's level, and Berkshire's tax liability does not change whether the investee's dividend payout ratio is 0% or 100%. The dividend money coming in the door is booked as return of capital, and (for less than obvious reasons) each dividend reduces the book value of the stake.
Normally this would be one of those things that makes a multiple of book value an even worse yardstick for the value of the firm over time, but the market value and true intrinsic value of this particular holding have been falling along with the booked value so in this case it doesn't really make a meaningful difference. Had they been prospering, there would have been a gap continually widening between booked value and intrinsic value. The simplified valuation of the firm would appear to be a faint silver lining to the poor performance of this investment : )
Jim
