I hit the dividend reinvestment button on my stocks instead of cashing in dividends on the railroads and other companys that I own. First the divdends are so small in some cases that its not worth cashing the checks and its a way to increase my holdings without having to pay commisions. (Edward Jones has doller cost avaraging were you agree to subscribe to a certain amount of shares each month and you only pay a small % and automatic div reinvestment, I also like them becuse you get a real human being no matter how small you are & Most of the Class 1s have direct share buying programs see–http://www.csx.com/directinvest/?fuseaction=home.features )…Now the question here is…Is Warren Buffet good for the railroad? many investors do what I do and reinvest the divdend checks but what happens to Capital for tracks and bridges if Warren Buffet cashes in the Dividend Checks and uses it to prop up his other buinseses like Geico? Were is the money going to come from for new infrastucture? BNI is a perfect target for a cash rich buiness that could go from paying with cash back to the old credit card.
Warren Buffett will cash his dividend checks, there will be no more stock of BNSF to buy. The difference is that Warren is not concerned with the short term, BNSF management won’t have to worry about the day’s stock price. Mr. Buffett has shown no inclination to raid and run, has he made bad decisions, yes sometimes, and then he sells the stock. He bought stock in Moody’s and he is now selling at a loss. Now if Carl Icahn was buying I would be concerned.
BTW - If Geico was losing money over any significant term Mr. Buffett wouldn’t prop it up he would dump it.
You want to see a badly run freight railroad take a look at SNCF Fret, €3 billion down the toilet in about 5 years and the French Government is about to give them another €7 billion. Freight tonne - kilometers are disappearing almost as fast.
In future years BNSF might not even pay a dividend. Most of Berkshire’s businesses have free cash flow, so there is little need to extract cash from the railroad. Berkshire could easily conclude the best use of BNSF’s cash flow is to quicken the pace of upgrades to the railroad and skip the dividend.
Since I heard the news, I’ve been wondering what it means to any future industry consolidation. It certainly changes the playing field.
edit: I deleted a sentence containing an erroneous description of the transaction.
OK - fair enough. So let’s consider what upgrades might BNSF engage in ? The double-tracking of its Southern TransCon route is almost done, except for finishing Abo Canyon, the Pecos River bridge, and the ‘flyover’ at Vaughn. Each of them are around $100 - 300 Million range projects, and BNSF has like $1.5 Billion ‘free cash flow’ each year.
Positive Train Control implementation will soak up some of that - but that schedule is to 2015, and we’re already seeing some “Wait a minute, here” responses from the industry.
Other railroad acquisitions ? Anti-trust considerations - esp. under the Obama Administration’s Justice Dept., and what seems to me to be a newly energized pro-shipper STB - will preclude any of the other large systems. Smaller lines won’t be significant in either $ or industry terms.
I’m not aware that BNSF has pressing needs for more new locos, cars, or facilities, other than maybe more and larger intermodal terminals, which certainly could cost a lot of money. Maybe improving clearances on a few more lines to allow a wider network of double-stack operations ?
What about electrification ? Remember that as noted in the ‘Electrification’ article in Trains and elsewwhere, BNSF’s Matt Rose was quoted as being willing to consider partnering with electric companies for transmission lines over railroad ROWs. Again, in light of Berkshire Hathaway also owning MidAmerican Energy Holdings, I wonder if that correl
Will Warren Buffet take BNSF private or in the future issue more stock for capital investments when he will need money for them? Does it make good business sense for him to run BNSF as a private company ?
Warren Buffet is a value investor in that he invests in companys that have real tangible solid assets like buildings and locomotives. However the railroad also leases a good chunk of its rolling stocks as welll