In my recent Wal-Mart article, I mentioned that one of the risks of owning stock in a company reliant on share repurchases is that there is little recourse left when business conditions deteriorate and there is not enough retained earnings to continue executing a repurchase-reliant strategy to build shareholder wealth.
To get a glimpse of a real-life example, take a look at what is going on at ExxonMobil right now. Between 2000 and 2014, ExxonMobil retired enormous amounts of stock. Exxon had 6.9 billion shares outstanding in 2000, and reduced it to 4.2 billion by 2014. Those 2.7 billion retired shares ended up reducing the share count by 3.5% annually.
In 2000, Exxon was generating $16 billion in profit. By 2014? $32 billion. Based on profits alone, you would have expected earnings to grow from $2.41 to $4.82 over those fourteen years. But because the Exxon share count was lower, … Read the rest of this article!