Last December, Coca-Cola Enterprises (NYSE:CCE) announced it would repurchase an additional $1 billion of its shares in the coming years -- its fourth such authorization in as many years. At the time, Coca-Cola Enterprises' stock was at an all-time high, making the decision to repurchase more shares a questionable one.

However, the European beverage bottler and distributor may have been wise to increase the repurchase authorization. That December, management expected 2014 earnings per share to increase 10%, excluding currency impact. The company is on pace to hit that target through the first three quarters of 2014. Even so, repurchases at high prices are not usually the best use of cash. Is Coca-Cola Enterprises' repurchase plan still a worthwhile program? Let's find out!

A short history of buybacks
Coca-Cola Enterprises waited until after the global economic recession ended -- and its stock price rebounded -- before beginning to repurchase shares. The company began repurchasing shares in 2010 after its stock price rose above $25 per share and continued to repurchase shares as it rose into the mid-$40s per share. CCE Chart

CCE data by YCharts

The rising stock price has made Coca-Cola Enterprises' repurchases look attractive in hindsight. Now at a price-to-earnings ratio of 16, the stock does not seem egregiously expensive even despite the higher stock price. If earnings continue to grow at a moderate pace, repurchasing shares now may turn out to be a good idea.

Straining balance sheet to buy at the top?
Coca-Cola Enterprises' earnings per share are expected to grow by 10% this year, but the company expects less than 5% operating earnings growth. The $1 billion in share repurchases will enable the company to grow earnings per share, but it creates a false picture of the real health of the company. Shares declined after Coca-Cola Enterprises' third-quarter report warned that challenging economic conditions in Europe would likely mean revenue would remain flat for the year. If conditions continue to worsen throughout 2015, earnings may decline and make repurchases at current prices look foolish.

Instead of repurchasing shares as the company's fundamentals slow their forward momentum, Coca-Cola Enterprises could allow shareholders to decide how to allocate the capital for themselves by boosting the dividend. The company has a Dividend Reinvestment Plan, or DRiP, that allows shareholders to reinvest the dividends without having to pay a commission. Although shareholders would have to pay taxes on the dividend, the option to increase or reduce exposure to Coca-Cola Enterprises may be worth the expense.

In addition, boosting the dividend might lead to a higher stock price. The company paid $237 million in dividends over the last four quarters. Redirecting $300 million per year from the stock repurchase plan to pay a higher dividend would more than double the stock's dividend yield, which is currently 2.4%.

No matter how the company distributes the cash, it is concerning that the company is taking on debt to repurchase shares just as free cash flow is declining. Coca-Cola Enterprises has added $2.5 billion in new debt since 2009, while operating cash flow has declined from $1.5 billion in 2009 to $914 million in 2013. If business results continue to deteriorate, share repurchases could squander much-needed capital.

Takeaway
Buying back shares after a big run-up in the stock price amid deteriorating business conditions may not be the best use of shareholder capital. If investors learned anything from the Great Recession, it's that companies with strong balance sheets survive downturns and those with weak balance sheets struggle. Coca-Cola Enterprises is weakening its balance sheet by borrowing capital to repurchase shares just as sales and earnings start to falter. The company should be able to ride out another downturn, but shareholders may wish the company had been less concerned about boosting earnings per share and more interested in buying back shares at low prices.

Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.