Take, for example, Coca-Cola, one of the giants in the S&P 500, whose prestige is further enhanced by its shareholder base, which includes Berkshire Hathaway, which has a 9.3% stake.
Over the last ten years, i.e. between 2016 and 2024, Coca-Cola generated total cash profit—or free cash flow—of $68bn, including changes in scope. Of this, $64bn was distributed to shareholders in dividends.
At the same time, $16bn was used for share buybacks, while net debt increased by $10bon to finance these transactions. And yet, on a diluted basis, the number of shares outstanding has hardly decreased, falling from 4.37 billion in 2016 to 4.32 billion in 2024.
So much money for so little, and the explanation is easy to find: the real purpose of these share buybacks was simply to cancel out the dilution caused by stock option-related share issues, which at Coca-Cola—unlike in the technology sector—only affect a small number of executives, but are nonetheless extremely lucrative.
As MarketScreener has often said in these columns, share buybacks should in this case be treated as an operating expense rather than a return of capital to shareholders, since they are primarily part of the remuneration of senior management.
Some press releases or announcements can therefore be misleading. Even a stockmarket giant like Coca-Cola is not immune to legitimate suspicion.
It will clearly take more than this to upset the market, which continues to focus on Coca-Cola's impressive dividend growth—which has increased fivefold in 20 years—and to value the group at multiples above its historical averages, while its long-standing rival PepsiCo is experiencing certain difficulties.
See also: Sudden slippery slope for PepsiCo and Coca-Cola vs. PepsiCo: the stockmarket battle.
