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Ouch, Berkshire Hathaway Negates 3 Months of Dividend Gains

Posted by: Howard Silverblatt on February 12, 2010

You need to think about this first before you calculate it. After the close of business tonight BNI with an index value of $26 billion and which pays a dividend will be removed from the S&P 500, and BRK.B, with an index market value of $127 billion (float adjusted) and which does not pay a dividend will be added. The removal will reduce the S&P 500 indicated dividend rate by $0.05, and also cause the index divisor (think of them as shares outstanding) to be increased by over 1%, to insure that there is no gain or loss in the index price. One of the side items however is that when you add up the index dividend rate in billions of dollars, you are dividing by a larger divisor, so the per share rate goes down. The full impact of the BRK / BNI deal is to negate all of the positive good dividend news we’ve had over the past three months. The simplified explanation is that your dividends in billions are only slightly lower but since you have more shares outstanding your piece of the pie is smaller (a concept to keep in mind when looking at Financial EPS).

That said, we are still holding to our initial 2010 overall 5.6% S&P 500 dividend growth rate, anticipating a good February, followed by a few decreases and better news in the second half (if the economy cooperates). Not that I knew about the change, but I certainly calculated it, just as I calculated if those three top issues (of the top 15 by market value) that don’t currently pay a dividend decided to yield their cash and pay (they would add $0.495 for each 1% yield; BRK would add another $0.141 for each 1% yield – no harm in knowing the numbers).

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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