Buffett Watch

Berkshire shares jump as Buffett says buybacks are an option

Key Points
  • Warren Buffett's Berkshire Hathaway has $116 billion in cash but is having trouble finding opportunities in a pricier market.
  • Buffett told CNBC in an interview Monday that at some point he could consider returning cash to shareholders in the form of buybacks.
  • However, he said the company is unlikely ever to consider implementing a dividend, which he called an "implied promise that you keep paying them forever."
Buffett: Berkshire has been a saving accounts

If Warren Buffett's company can't find other ways to deploy the $116 billion in cash it has lying around, it will consider returning some to shareholders. Just don't expect it to be in the form of a dividend.

In a letter to Berkshire Hathaway shareholders released over the weekend, Buffett revealed that the conglomerate has been having a difficult time finding bargains as market prices continue to increase.

He told CNBC in an interview Monday that using the cash for share repurchases is not out of the question.

"I'm fairly confident that we'll find ways to deploy money," he said on "Squawk Box."

Berkshire shares rose 3 percent in morning trade following the Buffett interview.

"The best chance to deploy is when things are going down, obviously," Buffett added. "But if we don't we'd probably be more likely — it would depend on the price of the stock entirely — but the inclination might be more toward repurchases than dividends because dividends have the implied promise that you keep paying them forever."

Berkshire Hathaway's buyback benchmark is when shares hit 120 percent of book value. Both the Class A and B shares are trading near 170 percent of book currently, so shares would have to fall quite a bit before a fresh round of repurchases would be initiated.

Some shareholders and analysts over the years have called for Berkshire to raise the threshold, but Buffett did not indicate if he is considering a change.

"We know that we're doing the continuing shareholders a favor if we buy it at that price," he said. "Obviously, I'd leave some margin of safety when I'd do the 120 percent."

As for a dividend, Buffett recalled that a few years back the question was put to investors whether they wanted one, and the measure lost by a margin of 47 to 1.

He thinks investors are better off with repurchases, because they get a larger share of the company when shares are reduced. Buffett called Berkshire stock a "savings account."

"You can sell a little piece of Berkshire every year and still end up owning more of it than you had before," he said.