Tags: Dorfman | Buffett | tax | dividend

Dorfman: Buffett Shows His Wisdom in Tax Strategy, Dividend Stocks

By    |   Monday, 17 November 2014 08:00 PM

It goes without saying that Warren Buffett's investment strategies command respect.

And "two recent news stories reminded us that as year-end tax planning and portfolio rebalancing comes upon us, there is much to copy in what Buffett does," Jeffrey Dorfman, an economist at the University of Georgia, writes on Real Clear Markets.

"First, there is his repeated tax-advantaged use of appreciated stock holdings. Second, there is his love for dividend-paying stocks."

Buffett's Berkshire Hathaway announced last week that it will buy Proctor & Gamble's Duracell battery business for $4.7 billion. But that payment will come in the form of Berkshire's P&G shares, which it apparently bought for $336 million.

"With this structure, Berkshire saves $1.66 billion in taxes and Proctor & Gamble saves on taxes as well, because it is essentially buying back stock with an appreciated asset (Duracell), rather than using its own retained (post-tax) earnings."

P&G shares have lagged far behind the overall market for the past five years, so Buffett may have been eager to jettison them in any case. 

As for dividend stocks, which make up a heavy portion of Berkshire's portfolio, "historically, dividend paying stocks have either matched the broader market or beat it," Dorfman writes.

He wasn't the only one impressed with Berkshire's tax strategy in the Duracell transaction. "It's a brilliant financial deal," Buffett biographer Andrew Kilpatrick told Bloomberg. "He's getting a tremendous deal, tax-wise."

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"Two recent news stories reminded us that, as year-end tax planning and portfolio rebalancing comes upon us, there is much to copy in what [Warren] Buffett does," says Jeffrey Dorfman, an economist at the University of Georgia.
Dorfman, Buffett, tax, dividend
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2014-00-17
Monday, 17 November 2014 08:00 PM
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