Dividend Stocks Are A Shield Against Mr. Market

Berkshire Hathaway (BRK.B) is one of my favorite companies. I can't say enough good things about the firm. It would not surprise me if at some point in my life that company became my largest stock holding. However, as many retirement investors looking to live off of income will be quick to point out, the company doesn't pay a dividend. This hasn't historically been an issue for Berkshire shareholders because Warren Buffett has been able to compound book value growth by around 20% annually over a forty year-old period, and the stock price has generally reflected this growth (thereby turning many long-term Berkshire shareholders into millionaires in the process).

But unfortunately, from a wealth preservation standpoint, shareholders are entirely at the risk of Mr. Market. The shares currently trade at $93 per share. If the company falls to $70 per share in December 2013, shareholders will have to deal with the fact that the company is only worth 75% of what it was at the beginning of the year. With a non-dividend paying stock, there is no shield to limit Mr. Market's influence on a share price. I do not mean this as a dig at Berkshire. It's a fantastic company that increases book value by a rate noticeably higher than inflation every year, and it seems perfectly intelligent for a long-term investor to own Berkshire stock on the belief that the book value growth will be realized in the stock price over the long term. The point is, there is nothing about owning Berkshire Hathaway that offsets the influence that Mr. Market has on the value of his wealth invested in the firm.

Source: Seeking Alpha

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