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Warren Buffett was not a proponent of providing investors with dividends while he ran Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) for 60 years -- and that philosophy continues with new CEO Greg Abel.
In the 2026 letter to shareholders, Abel wrote, "Our approach to cash dividends continues to be that Berkshire will not pay dividends so long as more than one dollar of market value for shareholders is reasonably likely to be created by each dollar of retained earnings." Basically, it means that management prefers to invest any excess earnings in the business or on new acquisitions.
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But Abel, like Buffett, does see the value in share repurchases. "We will buy back Berkshire shares when they trade below our estimate of intrinsic value, conservatively determined, ensuring that repurchases enhance per-share value for continuing owners," Abel wrote in the shareholder letter.
In the second quarter, according to the company's 10-Q, Berkshire repurchased about 7.1 million Class B shares at an average price of $487.98 per share. It also bought back about 1.5 million shares in May at $476.01. Overall, management acquired some $4.5 billion in company shares in the quarter. It also bought back $235 million in company stock in Q1, the first share repurchase since the second quarter of 2024.
Based on its buyback strategy, management obviously saw the stock as trading below its intrinsic value. Is Berkshire Hathaway stock still a good value today?
At the time of the May buyback, Berkshire stock was down about 5% year to date, and at the time of the June repurchase it was down 3%. Since then, Berkshire stock has jumped some 14% as of Nov. 3 to $557 per share -- up about 11% year to date, slightly ahead of the S&P 500.
If Berkshire was trading at a discount in Q2, what should investors think about where the stock is trading now?
The price-to-earnings ratio is not a useful metric for gauging Berkshire Hathaway's value, since its earnings include unrealized gains in its portfolio. But its operating income, which is income earned from the businesses it owns a stake in, or owns entirely, jumped 16% in Q2 to $13 billion. Through the first six months, operating income has risen 17% to $24.3 billion.
Berkshire owns stakes in some 70 companies, including Benjamin Moore, GEICO, and Dairy Queen, as well as railroads, insurers, construction companies, and industrial firms. Because of the mix of companies that Berkshire owns, the conglomerate is built to perform well in more challenging economic environments.
That's because the companies it owns must meet Berkshire's rigorous screens to ensure they are a good value, well managed, and perform well in most economies. So when you assess Berkshire Hathaway as an investment, look at its operating income and how it's trending.
An analysis by Morningstar finds that Berkshire is currently slightly overvalued, trading at a 10% premium. But I wouldn't be deterred from adding shares at a perhaps slight overvaluation. Because Berkshire Hathaway stock, even at its current share price, is built on the foundation of these diversified companies that are good values, that are well managed, and that perform well in various markets.
I think Berkshire is a buy ahead of Nov. 7 earnings.
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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
Berkshire Hathaway Bought Back Its Own Stock at About $488 a Share in June. Should You Buy It Near $557? was originally published by The Motley Fool
