Should a holdco pay a dividend, buy back stock or keep acquiring?

What is the right order of priority?

The disclosed policies point to one order. First, buy businesses that earn more than your hurdle. Second, keep the debt at a level that survives a bad year. Third, pay out the cash that acquisitions cannot absorb at your hurdle. Fourth, buy back stock only when the price is below what the business is worth.

Constellation's president's letters state the first and third points. The 2017 letter says it invests retained capital when it expects to reach its hurdle rates and otherwise holds its hurdle rates and builds cash, with a stated plan to return free cash flow to investors. The 2021 letter adds that it stopped special dividends except in the most compelling circumstances and keeps a regular quarterly dividend "for now" ( 2021 President's Letter).

What do the disclosed policies and amounts look like?

• Lifco, 2025: dividend policy of 30 to 50% of after-tax earnings, with 33.8% proposed. Cash flow from operations was SEK 5,124M, business acquisitions and disposals, net, SEK 3,360M and dividends paid to Parent Company shareholders SEK 1,090M. That is about 66% and 21% of operating cash flow (my arithmetic). I found no buyback, and the report says share capital has been unchanged since the IPO ( Annual Report, year-end report).
• Addtech, year to 31 March 2026: an objective of a dividend above 30% of average group profit after tax over a business cycle. The board proposed SEK 3.60 per share, up from 3.20 ( year-end report 2025/26).
• Judges Scientific, 2025: total dividend of 115p, up 10%, covered about 2.4 times by adjusted earnings. The chair describes a policy of raising the dividend by a minimum of 10% a year, and the CFO adds that this is subject to adequate cover. The only share purchase shown is £0.1M for a company reward scheme ( FY2025 results).
• Constellation, 2025:$85M paid to common shareholders against $1,227M cash paid for acquisitions, about 7% of the acquisition figure ( Q4 2025 release).
• Berkshire: one cash dividend from 1965 to 2024 ( 2024 letter).

When does a buyback make sense?

Berkshire's 2025 letter, signed by Greg Abel as CEO, says it will buy back shares when they trade below its estimate of intrinsic value, conservatively determined ( 2025 letter). The 2018 letter calls blindly buying an overpriced stock value-destructive ( 2018 letter). That letter also pledged to hold at least $20 billion in cash equivalents, but it ties the pledge to calamities, not to buybacks. Of the other groups above, I found no buyback at Lifco or Judges and none discussed in the Constellation letters I opened.

Two practical points for a small public holding company. A buyback needs a stock price you trust, and thinly traded shares rarely give one. And cash spent on stock is cash not spent on acquisitions that might clear the hurdle. My view is that a buyback is the last use of cash, not the first.

What if shareholders want the holdco to stop paying dividends?

Constellation's 2021 letter describes a director who argued that the company could invest better than most shareholders and should stop dividends and lower hurdle rates. The author says he used to argue that dropping hurdle rates for a few marginal deals would lower returns on the whole portfolio. The letter then moves part of the way: special dividends stop except in compelling cases, the quarterly dividend stays for now but could be sacrificed if better uses for cash are found, and small and mid-sized deals keep traditional hurdle rates. For very large deals, which need multihundred-million-dollar equity cheques, it says lower hurdle rates would get Constellation into more auctions ( 2021 letter).

What does the choice look like in numbers?

Worked example (assumptions only). A holding company has $1.0M of free cash after debt service. Assume a 25% tax rate.

• Acquire at 6x pre-tax profit: $1.0M buys $0.167M of pre-tax profit, or $0.125M after tax. That is a 12.5% after-tax yield.
• Buy back stock at 10x earnings: the yield on the cash is 10%. At 15x it is 6.7%.
• Pay a dividend: the shareholder receives $1.0M and chooses what to do with it.

On these inputs, the acquisition beats a buyback at 10x earnings, ties one at 8x (12.5%) and loses if the stock trades below 8x earnings. The comparison ignores growth, deal risk and integration cost. If no deal beats the buyback or your hurdle, pay out the cash.

Where these numbers come from: Lifco figures are from its Annual and Sustainability Report 2025 and year-end report. Addtech is from its 2025/26 year-end report. Judges is from its FY2025 results. Constellation is from its Q4 2025 release and 2017 and 2021 letters. Berkshire is from its 2018, 2024 and 2025 letters. The examples are the site's assumptions.

Related questions

Can a holding company with no earnings pay a dividend?

It can, but only from cash or reserves, and company law limits it. Confirm with your securities lawyer. Without free cash flow, a dividend is returned capital, not profit.

Is a dividend better than a buyback?

A dividend is equal to all holders and does not depend on the stock price. A buyback helps only if the price is below value, and it benefits holders who do not sell. The choice is a price decision.

Should a new public holdco pay a dividend at all?

The disclosed groups started from a base of earnings. Until acquisitions reliably clear the hurdle, retained cash usually has a higher use. Treat this as a view, not a rule.

What comes next

If you choose to keep acquiring, the next question is deal size: How big each acquisition should be.

Related articles

• What hurdle rate should a serial acquirer use?
• What is ROIC (or ROTIC), and why do serial acquirers obsess over it?
• How much debt is safe for a public serial acquirer?
• Can you build a "Berkshire Hathaway for small businesses"?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.