Let’s take a little time to talk about Coca-Cola, and how management is killing little shareholders like you. I touched on this before, but let’s take a longer look at Coca-Cola’s share buybacks and how they’re barely moving the needle.
Over the last 4 years (excluding any part of 2014, for easy figuring), Coca-Cola spend nearly $11 billion buying back shares, according to it’s cash flow statement on the Google. Most of the time, the company’s shares were between $35 and $40 each, so we can assume that at an average of $37.50 per share would have gotten rid of more than 293 million shares. That seems like a lot, but it’s only a little more than 5% of Coke’s outstanding share count of 4.4 billion.
Then why did the share count only go down by 180 million?
It’s simple. Management is issuing themselves a huge amount of stock.
Not only that, but they’re borrowing a whole bunch of money to do so. Check out the last 4 complete years of cash flow:
They’ve spent $11 billion (ish) on buying back stock, and borrowed $15 billion to do it. Now the amount of cash on the balance sheet has gone up in the meantime, but not nearly enough to compensate for all the borrowing.
Essentially, management is issuing themselves massive stock options, and then borrowing money to buy back shares to lessen the effect. Why this doesn’t piss off Coca-Cola investors is beyond me.
Look at the share count barely moving, even though they company is spending billions buying back stock.
(The share count, at the bottom, is in million of shares. So the company went from 4.584 billion shares to 4.402 billion.)
To put in into perspective, it’s like the company paid the equivalent of $61.11 per share to buy back its own stock, because it’s too busy issuing shares to management. 110 million shares in 4 years works out to $4.25 billion in stock based compensation, assuming each share is worth $37.50.
Everybody crapped all over the banks (and rightfully so) when they paid out bonuses after the financial crisis. I know Coke isn’t in the same boat as the banks were, but why are shareholders cool with this? I’m pretty sure the company’s management isn’t so underpaid that they need these bonuses to survive.
When the newest share compensation plan was announced at the 2014 annual meeting, Warren Buffett actually went as far as abstaining to vote for the newest plan. He could have made a bigger statement by giving it the ol’ thumbs down, but hey, it’s a start.
There are many reasons why I think Coca-Cola is a terrible investment at these levels. It trades at an expensive P/E, consumption is going down, growth is virtually nonexistent, and it does dumb things like partnering up with Green Mountain Coffee Roasters to introduce a Keurig machine for Coke, because apparently there isn’t a perfectly good method for delivering perfect Coke products to consumers already.
Anyway, avoid the stock.
Time for links, yo.
You all know the drill by now. This is the stuff I do for Motley Fool Canada, blah blah blah.
TransAlta is a pretty beaten-up power generator with some problems that I think are largely behind it. Plus, shares are at something like a 14-year low, and trading at the lowest price-to-book multiple since 2004. Here are some more words I wrote about it.
Last week, Suncor reported earnings that included approximately 3% of its book value written-off because of a failed project. And yet, the stock is down 7% since. Why? I take a look at the market’s obsession with the short-term, and how you can rise above it.
Apparently it was Warren Buffett week in my head, because I wrote about him (and Fairfax Financial head honcho Prem Watsa), detailing why insurance is a big key to their success.
If you’re one of those dividend growth investor types that likes investing in companies that are a little beaten up, I continue to think you’d do well with Rogers Communications. Go read.
And finally, I make a dream joke about Dream Office REIT, perhaps my favorite name in that sector. It trades at 80% of NAV and has nearly an 8% dividend. What’s not to like?