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Buffett Takes $2.25 Billion in Burlington Dividends Since Biggest Takeover

Wednesday, 09 Mar 2011 08:55 AM

Warren Buffett’s Berkshire Hathaway Inc. took $2.25 billion in dividends from Burlington Northern Santa Fe in less than 13 months of ownership, almost triple the railroad’s payout rate prior to the February 2010 acquisition.

Burlington Northern paid a $1 billion dividend last month, it said Feb. 28 in a filing. The railroad held by Berkshire’s National Indemnity Co. insurance unit paid $1.25 billion last year under Buffett. The $2.25 billion total compares with $772 million that Burlington Northern handed to stockholders in the 13 months prior to being acquired by Buffett’s firm.

Buffett is withdrawing cash from Burlington Northern after taking on $8 billion of debt to help finance the acquisition. Burlington Northern’s publicly traded rivals have raised their dividends and restarted share repurchases as earnings advanced across the railroad industry. The dividends may reassure rival stockholders that Berkshire’s entrance into the market won’t put their railroads at a disadvantage, said Walter Spracklin, an analyst with RBC Capital Markets.

“I did indeed get questions as to whether Burlington Northern would be at a capital advantage as a privately owned entity,” said Spracklin, who covers railroads from Toronto. “This would suggest that it’s certainly not the case.”

Union Pacific Corp. (UNP), the biggest railroad by revenue, paid dividends of $602 million and repurchased $1.25 billion of shares in 2010 as it posted $2.78 billion of profit. In 2009, dividends were $544 million, and the company reported no buybacks on its repurchase plan. Burlington Northern, the No. 2 railroad, didn’t buy shares on its repurchase program in 2009.

Berkshire’s Cash, Debt

Buffett is adding to a cash position at Berkshire that ended December at $38.2 billion, its highest since year-end 2007. The Omaha, Nebraska-based company, which doesn’t pay a dividend to shareholders or buy back stock, is seeking acquisitions and facing payments on debt it issued last year in connection with the $26.5 billion railroad buyout. Burlington Northern’s profit gained 43 percent to $2.46 billion last year.

“We expected BNSF to dividend the free cash flow to Berkshire to repay some of the acquisition-related debt,” Anita Ogbara, a credit analyst at Standard & Poor’s, said in an interview. “The level of shareholder rewards, and by that I mean dividends and share repurchases, is still in line” with publicly traded railroads, Ogbara said.

Steve Forsberg, a spokesman for Burlington Northern, declined to comment. Buffett didn’t reply to a request for comment e-mailed to an assistant.

Capital Spending

Buffett, Berkshire’s chairman and chief executive officer, called the Burlington Northern takeover the “highlight of 2010” in his annual letter to shareholders last month. The 80-year-old billionaire said Berkshire spent $6 billion last year on property and equipment and predicted the company’s capital spending will swell to a record $8 billion in 2011.

Burlington Northern used a net $3.1 billion of cash last year for investments including equipment, up from $2.64 billion in 2009. The unit said last month it plans $3.5 billion in capital spending this year. Omaha-based Union Pacific forecast spending of $3.2 billion this year, which includes buying 100 new locomotives. The company reported capital investments of $2.5 billion for 2010.

Buffett called the Burlington Northern purchase an “all-in wager” on the U.S. economy. Buffett, who built Berkshire through four decades of stock picks and acquisitions, increased his focus on capital-intensive businesses as his firm has grown.

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Warren Buffett s Berkshire Hathaway Inc. took $2.25 billion in dividends from Burlington Northern Santa Fe in less than 13 months of ownership, almost triple the railroad s payout rate prior to the February 2010 acquisition. Burlington Northern paid a $1 billion dividend...
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