As we approach the home stretch of negotiations, I spent yesterday selling off some of our Berkshire Hathaway hoard, which I still think is significantly undervalued for long-term owners even though we generated some very nice taxable capital gains on the portion we liquidated, to come up with the cash necessary to buy out all of the shareholders of one of my retail companies.
The plan is to merge the business under Kennon Green Enterprises as a wholly owned subsidiary, though I may hold off on that until next fiscal year. The deal looks like it will be structured so that the departing shareholders will receive a distribution of property, privately issued bonds, and a significant up-front cash check that is, in my opinion, more than fair.
I’m also thinking of doing several more case studies of dividend paying companies over the past 25 to 50 years like the one I just published of The Clorox Company. I had the idea when going through the checks that came into one of the limited liability companies I own. I love dividends. I really do. Capital gains are great, but collecting cash from a decision you made years ago, and watching it grow so that it is at least a 10% or 20% yield-on-cost is emotionally satisfying.
Come to think of it, it is somewhat ironic that growing up, it was Berkshire Hathaway I collected (though, back then, the Class B shares were not split yet and traded at $1,800 each.) If Warren Buffett ever does pay a dividend, or upon his death if the Board of Directors decides the best way to protect capital is to distribute it so there is less to allocate, my dividend income will skyrocket. It is still, by far, my biggest holding in terms of public securities.
Anyway, these are a relic of my younger, less experienced days. One of the first things I did when I started my first company back in my early twenties was use the profit to buy 1 share of stock in 100+ businesses, have them framed, and keep them on the wall. Then, I had the company enroll in the direct stock purchase plans of a dozen or so of the firms, with dividends plowed back to buy more shares and regular contributions withdrawn, like bills, from the company checking account. The stocks I chose were McDonald’s, PepsiCo, General Electric, Johnson & Johnson, and a few others of comparable quality.
We amassed a good deal of surplus capital doing that, and never thought about it because the money was treated as if we were paying a bill to a vendor. I don’t remember exactly, but I am almost certain that I had $250 per stock, per month withdrawn, or $3,000 per year into each company for a total of $36,000 annually. I thought of it as hiring an employee that never showed up for work but who went out in the world and made money for me. On the books, it was referred to as the “Blue Chip Reserve Portfolio”, while the rest of the profits went into an account I managed actively to either expand the company, buy public stocks, or pay dividends to the members.
[mainbodyad]It became unwieldy from a management perspective. Like I said, I was young and excited. It took several years, but I came to my senses. Now, we have corporate brokerage relationships, stocks are only bought in round lots, dividends are paid and pooled in a cash account, and then reinvested whenever I decide to buy more shares of something. It keeps it so much cleaner. The stocks we bought were transferred in and sold down or bought up to reach round lots, but I still get around $20 to $100 in checks from various companies every quarter for the firms I haven’t yet shut down.
They have come in handy, helping teach the youngest members of my family about ownership and how you can get money sent to you in the mail if you own a productive asset. I really need to get on this and at least have them direct deposited because I do not want to have to un-frame all of those stock certificates and deal with the paperwork.
My grandma told me I should give her the checks because they are a nuisance to me. She wouldn’t mind tallying them up and depositing them in the bank. It might mean a few more QVC or an extra trip to the casino. Maybe I will. They just sit on my desk until I do something with them, sometimes for months.
That’s it. Just work today. It is beautiful around here. Everything is starting to burst into oranges and reds.
I think I’ll go get pancakes for breakfast / lunch (at 2 p.m., mind you) from iHop or something. That sounds good. I have a case study of The Walt Disney Company almost finished. I am running into trouble finding their historical dividend records back to 1957.