Warren Buffett Was Said To Overpay For BNSF Railway, Here's Why He's Having The Last Laugh

Legendary investor Warren Buffett is a fan of railroads, especially one of the leading railroad companies in North America, which is owned by Berkshire Hathaway Inc (NYSE: BRK-A)(NYSE: BRK-B).

Buffett received some criticism and concerns about overpayment for the railway, but the legendary investor can likely laugh about it today.

What Happened: Since 1970, Berkshire Hathaway has acquired more than 50 companies and increased the size of its portfolio. Companies owned by Berkshire Hathaway include GEICO, Helzberg Diamonds, Fruit of the Loom, Duracell and Dairy Queen.

Berkshire Hathaway is also the owner of BNSF Railway, one of the largest freight railroad networks in North America.

Buffett began investing in BNSF Railway in 2007 and years later offered to acquire the remaining stake in the company Berkshire did not already own.

Berkshire Hathaway announced in 2009 that it would acquire the remaining 77.4% of BNSF for $100 per share. The deal valued the company at $44 billion, including $10 billion in outstanding debt and marked one of the largest acquisitions in Berkshire Hathaway's history.

The deal was also pretty noteworthy as it was done with cash and Berkshire stock, something that broke tradition for the typical all-cash deal Buffett.

Alongside the deal for BNSF, Buffett also announced the introduction of the Class B Berkshire shares, at a 50-for-1 ratio.

A recent chart shared in the daily Whitney Tilson email from watchlistinvesting highlighted just how good the BNSF deal has been for Berkshire Hathaway.

“Speaking of Buffett, many critics said he overpaid for BNSF Railway when he acquired it in February 2010, shortly after the global financial crisis, in a $44 billion deal,” Tilson writes. “As always, he has had the last laugh, as the railroad has paid Berkshire more than $50 billion and counting.”

Here’s a look at the dividends paid by BNSF to Berkshire since 2010:

2010: $1.25 billion (cumulative $1.25 billion)

2011: $3.50 billion ($4.75 billion)

2012: $3.75 billion ($8.50 billion)

2013: $4.00 billion ($12.50 billion)

2014: $3.50 billion ($16.00 billion)

2015: $4.00 billion ($20.00 billion)

2016: $2.50 billion ($22.50 billion)

2017: $4.575 billion ($27.075 billion)

2018: $5.45 billion ($32.525 billion)

2019: $4.425 billion ($36.95 billion)

2020: $4.83 billion ($41.78 billion)

2021: $3.80 billion ($45.58 billion)

2022: $5.00 billion ($50.58 billion)

“The railroad pays us, however, only what remains after it fulfills the needs of its business and maintains a cash balance of about $2 billion,” Buffett said previously.

Related Link: Warren Buffett Explains Why Apple Stock Is An Extraordinary Investment 

Why It’s Important: BNSF remains one of the most important pieces of the Berkshire Hathaway portfolio. Buffett called BNSF its second most valuable asset in previous comments.

As seen above, Berkshire Hathaway has gotten paid more in dividends than it paid for its stake in the railroad.

Known as a value investor, Buffett has been able to generate strong annual returns with dividends from his investments in publicly traded companies and free cash flow from companies that are owned outright by Berkshire.

The annual earnings are invested into new companies and stocks to continue the process.

Berkshire Hathaway is one of the largest owners of Apple Inc (NASDAQ:AAPL) shares, a technology giant that pays dividends. Berkshire owns around 5.4% of the company with 895,136,175 shares.

With the Apple holding, Berkshire Hathaway was paid $823.5 million from dividends in 2022 from the technology giant.

Another key Berkshire holding is Coca-Cola Inc (NYSE:KO) with the conglomerate owning 400 million shares. Each year, Berkshire is currently paid $704 million in dividends.

While many have questioned the stakes Buffett has taken in companies or his outright acquisitions, the legendary investor has proven that he typically comes out on the winning side, which he did with BNSF.

Read Next: If You Invested $1,000 In Berkshire Hathaway Stock When Warren Buffett Bought GEICO, Here's How Much You'd Have Now 

Photos: Shutterstock; Courtesy BNSF Railway