Ask Matt: Why doesn’t Berkshire pay a dividend?

Q: Why doesn’t Berkshire pay a dividend?

A: By the time companies get to the size and maturity of Warren Buffett’s Berkshire Hathaway (BRKA), investors often demand a dividend. Buffett is exempt.

Berkshire Hathaway is just one of four companies in the Standard & Poor’s 500, valued at $200 billion or more, that pay no dividend, according to a Paste BN analysis of data from S&P Global Market Intelligence. Other giant companies that don’t pay dividends are much younger than Berkshire, including Facebook (FB), Alphabet (GOOGL) and Amazon.com (AMZN).  Understanding why Berkshire doesn’t pay a dividend gets to the core of the company. Berkshire has long been a collection of businesses that generate cash that Buffett can use to invest in other companies. Investors have long figured the cash generated by Berkshire’s stable of companies can be put to better use by Buffett than by themselves. The same is often not the case with other companies, which might be tempted to waste excess cash on acquisitions that erode long-term value. Investors looking to invest in giant companies that generate large dividends have alternatives. AT&T (T) and Verizon (VZ) have dividend yields of 5.1% and 4.4%, respectively.

Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.