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Executive summary:

  • Share repurchases have provided large capital gains to shareholders.
  • Management has proven adept at repurchasing stock when prices are low.
  • Dividends per share are markedly higher than they would have been with no buybacks.

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Coca-Cola (KO) is one of the most recognizable brands in the entire world and as an investment, has been making shareholders money for almost 100 years. KO's earnings and dividends are well-publicized and have certainly made it easier for investors to hold the stock. In this article, we'll take a look at another way KO has made you money over the years and that is share repurchases. We'll see how many shares KO has repurchased in just the last 30 years and what it means for investors going forward.

To begin, we'll take a look at this chart of KO's shares outstanding going back 30 years (all charts courtesy of YCharts). In 1984, KO had a split-adjusted 6.363 billion shares outstanding and as you can see, the 80's alone saw almost a billion of those shares retired. Shares steadily declined through the 90's when buybacks began again in earnest in the late 2000's. Today, KO has 4.416 billion shares outstanding, a decline of nearly 2 billion shares from 30 years ago. This implies that KO has retired an astounding 30.6% of its shares that were outstanding 30 years ago; that is great news for shareholders and we'll see why now.

So let's see what KO shares would look like today if its basic stats like market cap and dividend were the same but KO still had the same share count from 1984 today. This exercise will demonstrate the power of buying back shares and how KO has helped shareholders by retiring so much stock.

KO's market cap today is $170.3 billion and given KO's share count, trades at $38.57. If KO still had 1984's share count, that same market cap would produce a price per share of only $26.76, or 30.6% lower than it is today. Or thinking of it a different way, had KO not repurchased shares and the price would have been $26.76, KO has given investors a boost of 44% over what price shares would have been trading for. Either way you slice it, share repurchases have been a large portion of KO's price returns over the past three decades.

KO currently pays a $1.12 annualized dividend on its shares, or $4.95 billion annually. If shares outstanding were 6.363 billion, that same money would only produce a dividend of 78 cents per share. In other words, when KO repurchases shares, it not only makes the price of each share higher than it otherwise would be by spreading earnings over fewer and fewer shares, but it also means KO can pay a higher dividend per share. This means that KO is putting more money in your pocket in two ways; the price of your shares is higher and the dividend you receive on each share is higher as well.

A common knock on share repurchases is that many companies time the market by buying high and selling low when it comes to repurchasing their own shares. So how has KO done in this respect?

(click to enlarge)

As you can see in this chart, KO has actually done a masterful job of repurchasing the bulk of its shares when prices (orange line) were relatively low. When KO repurchased so many shares in the 80's and 90's shares were below $10 on a split-adjusted basis. In addition, during the boom years of the late 90's and early 2000's KO basically stopped repurchasing shares as the price skyrocketed. Then, as prices fell once more, KO began its buying binge anew, repurchasing hundreds of millions of shares at just over half of what their value would have been today.

In other words, KO has been a tremendously successful company when it comes to buying back shares. Many companies are terrible at timing their repurchases but on the whole, KO is one of the best I've seen. This company has found a winning formula in terms of its shares repurchases and if you weren't bullish on KO before, this data may help you rethink your position. In addition, with KO's tremendous track record repurchasing its own shares, you can bet that when KO is buying, you should be too.

KO not only has a world-beating brand and several billion dollar products, but it also has a management team that knows buying its own stock is a great investment. As the data shows, KO has made shareholders billions of dollars by simply investing in itself over the years and as buybacks are still a priority at KO, I don't see that changing. KO represents a case study in the power of compounding and in share repurchases done well. With all of those fundamentals still intact, I suspect the next 30 years will look much the same as the preceding 30 years.

Source: How This Dividend Aristocrat Will Continue To Put Money In Your Pocket