Friday, October 19, 2007

Sherwin Willliams (SHW) To Repurchase 23% of Shares

Sherwin Williams (SHW) today declared a dividend and announced a huge share repurchase plan.

SHW declared a regular quarterly dividend of $0.315 per common share, payable on December 7, 2007 to shareholders of record on November 16, 2007. In addition, Sherwin-Williams's board of directors authorized the Company to purchase, in the aggregate, 30,000,000 shares of stock.

With only 130 million shares outstanding, the authorization amounts to 23% of the outstanding shares. Now the question begs, when will it be finished? Let's look. In the past three years Sherwin has repurchased about $230 million a year worth of stock and for the first 6 months of 2007, that number sits far ahead of that pace at $250 million. If we use a $67 share price the 30 million shares comes to $2 billion dollars needed to finish the authorization. Of course there will be variations as the stock price fluctuates but we need to pick a number.

That means at the current rate of the past three years, it will take about 8 years to complete the repurchase. Now based on the fact Sherwin will probably repurchase in excess of $350 million this year alone, the eight year number is a worse case scenario. That being said, we are looking at about 4% a year being added to earnings from the repurchase plan. Not bad..

The nice part about the history of current management is that unlike the recent Home Depot (HD) buyback, the company will not be sunk deep into debt to accomplish it. In fact, long term debt at Sherwin has fallen from $506 million in 2002 to $291 million last year. Fiscally speaking, despite the housing recession we are in the company is in it best shape in years.

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