Advance Auto Parts, Inc. (AAP), International Business Machines Corp. (IBM), McDonald’s Corporation (MCD): These Companies Grow Shareholder Value Better Than All Others

International Business Machines Corp. (NYSE:IBM) is long past its high-growth days, but its customer relationships are so deep that it is virtually assured to continue increasing cash flows for the foreseeable future.

McDonald’s Corporation (NYSE:MCD) is the leading fast food chain with the most recognizable name in the industry; its growth prospects in China make it likely that profits will continue to grow at a steady clip over the next decade.

Compounding value per share

When taken together, free cash flow growth and share repurchases compound shareholder value at a high rate. Each company has increased its free cash flow per share by a significant amount as a direct result of share repurchases. As a result, these companies are worth far more than they would be had management simply paid out the cash in a dividend.

Bottom line

Constant share repurchases are nearly always good for shareholders. When combined with growing earnings, share repurchases compound shareholder value at a much higher rate than could otherwise be achieved. Therefore, investors who buy growing companies that habitually repurchase shares — and hold on for the long run — will likely be rewarded by outsized returns.

The article These Companies Grow Shareholder Value Better Than All Others originally appeared on Fool.com and is written by Ted Cooper.

Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends McDonald’s. The Motley Fool owns shares of International Business Machines. and McDonald’s. Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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