- It increases his ownership percentage in the companies.
- It demonstrates that management has a proclivity for serving shareholder interest.
He has one qualification though – that managements repurchase shares at the right price. In his 1984 shareholder letter, he says:
“The companies in which we have our largest investments have all engaged in significant stock repurchases at times when wide discrepancies existed between price and value.”
Buffett’s share of two of his “Big Four” investments at Berkshire Hathaway (BRK.A)(BRK.B) expanded in 2013 due to strategic share repurchases. According to the GuruFocus All-In-One Screener, one of his holdings has repurchased shares at an extraordinarily high rate.
Coca-Cola increased Buffett’s ownership of the company from 8.9% to 9.1% in 2013 due to share repurchases. Buffett notes that such incremental increases are not negligible. “If you think tenths of a percent aren’t important,” he wrote in his 2013 letter, “ponder this math: For the four companies in aggregate, each increase of one-tenth of a percent in our share of their equity raises Berkshire's share of their annual earnings by $50 million.”
Buffett’s ownership in Coke continuously increases although he has not actually purchased an additional share in the years that he has owned it. He owns 400 million shares in total, comprising 15.8% of his portfolio.
Coke has a three-year share buyback rate of 1.1%. This ranks higher than 83% of the 60 companies in the Global Beverages – Soft Drinks industry, where the median is -0.40.
In 2013, the company repurchased $3.5 billion of its shares, at the high end of its projected $3.0 billion to $3.5 billion. The 121 million shares in 2013 were purchased at an average price of $39.84, up from the same amount of shares purchased for $37.11 on average in 2012. A year prior, in 2011, it repurchased 127 million shares at the average price of $33.73.
For 2014, Coke expects to lower its target range to between $2.5 billion and $3.0 billion, meaning Buffett’s stake in the company will continue to increase.
Coke authorized its first share repurchase program in 1984 and is currently under a 500-million share repurchase program it authorized in 2012. During that period, it has bought back 3.1 billion shares of its common stock, at the average price of $13.82 per share.
American Express (AXP)
Buffett’s equity in American Express grew from 13.7% to 14.2% in 2013. His third largest position, he has also watched his ownership of this company grow without spending money on actually buying any new shares. He holds 151,610,700 in total, an equivalent of 13.1% of his portfolio.
American Express repurchased shares over the past three years at a rate of 3%. This ranks them higher than 90% of the 93 companies in the Global Credit Services Company, where the media rate is -1.3%.
American Express shares outstanding history:
Amex spent $3.94 billion repurchasing 55 million shares last year, at an average price of $72.51. This is down 20% from the 69 million shares it repurchased in 2012, at a cost of $3.95 billion. The last two years saw much more aggressive purchasing than normal, as in 2011 it spent $2.3 billion repurchasing 48 million shares.
Combined with dividends, Amex in 2013 returned 81% of its generated capital to shareholders. Its goal as stated in its recent annual report is to return 50% of its generated capital to shareholders as repurchases or dividends, if it achieves its laid out EPS and ROE targets of 12% to 15% growth and 25% or more, respectively. It returned more in 2013 mainly on the strength of its capital ratios and net income, compared to the capital required to support its growth.
If all goes well with the capital plan Amex submitted to the Federal Reserve in January 2014, it will embark on a $1 billion share repurchase in the first quarter of 2014. It expects a Fed response by March 31, 2014.
As of Dec. 31, 2013, the company has 108 million shares remaining under its March 2013 repurchase authorization, which has no expiration date.
Another Buffett company dedicated to reducing its share count is DirecTV. His ninth largest holding, it was actually purchased by his two fund managers at Berkshire and was the first of theirs to reach a total value over $1 billion.
Berkshire owns 37,514,700 shares of the company as of the fourth quarter of 2013, equal to 2.4% of the portfolio and 4.2% of the company, up from 3.8% of the company in 2012. Their holding history:
The company repurchases shares at a prodigious rate. At 2014 it had almost 1.4 billion shares outstanding, and a decade later has just 526.0 million. Its five-year share buyback rate is quite high, at 13.73%.
DTV’s repurchases of the recent eight years came at a cost of $29.7 billion. Over that period to Dec. 31, 2013, it retired 65% of its shares. All of the money the company has returned to shareholders in the past five years has been in the form of repurchases, as it has not paid a dividend since then and has no plans to in the future.
The latest DTV authorization occurred in February 2014, in the amount of $3.5 billion. This reflects a diminishing rate of repurchases at the company. In 2013 it spent $4.0 billion, in 2012 it spent $5.15 billion, and in 2011 $5.5 billion. The company’s price, however, has also been going up. On average, it was $57.54, $48.24 and $45.78 in 2013, 2012 and 2011, respectively.
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