Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B) is known for many things. A vast insurance empire. Owning BNSF Railway, Dairy Queen, and See’s Candies among scores of other business. Being one of the largest shareholders in American Express (NYSE: AXP), Apple (NASDAQ: AAPL) and Coca-Cola (NYSE: KO), among other venerable stocks.
However, one thing Buffet’s conglomerate is not known is paying a dividend. The Oracle of Omaha has long refused to pay a dividend because he believes he and his team can reinvest cash flow to better effect than what a dividend would deliver. Berkshire has been a buyer of its own shares, so it does engage in traditional forms of returning capital to investors, but no dividends.
It’s an interesting contradiction because Buffett has long advocated owning dividend-paying equities, regaling Berkshire shareholders with descriptions of for how long payouts from the likes of American Express and Coca-Cola have grown. In fact, nine of Berkshire’s top 10 equity positions are dividend stocks. All of that and still no dividend from Berkshire.
Fortunately, there is a way for investors to combine Buffett’s investing acumen and Berkshire’s own steady returns with an equity income stream: The VistaShares Target 15 Berkshire Select Income Fund (OMAH).
Observing OMAH
OMAH is more than a cute ticker. The ETF is less than two months old and already has more $48.2 million in assets under management, confirming the combination of Buffett and dividends is allureing to investors. No surprise there. Though not overly complex, it has some moving parts prospective investors need to be aware of.
“The Fund’s strategy involves two components: (1) investing in a portfolio of equity securities based on the Solactive VistaShares Berkshire Select Index; and (2) generating income through an options portfolio. Primarily through the Fund’s Options Strategies, the Fund seeks to achieve an annual income target of 15%, distributed monthly,” according to the issuer.
The new actively managed ETF features Berkshire Hathaway and more than 20 of the conglomerate’s largest equity holdings as its components. It writes options on those stocks to generate income.
“OMAH effectively creates what some may view as a ‘synthetic dividend’ for Berkshire investors, delivering monthly income from assets that have traditionally not paid dividends — all while retaining exposure to Buffett-style investing,” adds VistaShares.
OMAH Could Find Broad Audience
By targeting a monthly distribution of 1.25%, which equates to a tempting 15% annually, OMAH could be appealing to a wide array of investors. The obvious potential investors are those that simply love yield and high levels of equity income – plenty of those market participants out there.
Likewise, OMAH could be suitable for clients and investors that are direct owners of Berkshire stock. They’re obviously harnessing the benefits of Buffett’s investing prowess and Berkshire’s sprawling business lines, but their only compensation comes when they sell the stock. OMAH offers an alternative to that scenario.
Finally, options-writing ETFs are considered alternative income sources and can function as complements or replacements to fixed income assets for investors that are looking for more income or reduced interest rate-sensitivity.