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IBM board gives Big Sam another $5bn

Continues throwing money at market to inflate EPS growth

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IBM's stock repurchasing addiction to show earnings per share growth continues unabated, and today the company's board of directors gave the company's management another $5bn bag of junk to take to Wall Street to buy back its own shares in the coming year.

The news came as IBM was paying out its quarterly dividend of 55 cents per share, payable on December 10, and it was a reason for Big Blue to remind everyone that it has been paying out quarterly dividends since 1916. Other dividends might be bigger, but IBM's is longer and keeps a predictable rhythm, even in stressful times.

"IBM's strategic transformation to higher value businesses continues to drive profitable growth, and our strong cash flow performance has enabled IBM to return $73bn since 2003 to our shareholders," bragged Sam Palmisano, president, chief executive officer, and chairman at the company, in a statement. Some of that $73bn was spent on dividends, but the bulk of it went to buying back shares on the open market, allowing IBM to artificially grow EPS on a year-on-year basis. (Which is why I ignore EPS, except when it is the only metric available.)

IBM has raised its guidance three times for 2009, despite the economic meltdown, and is now promising to hit $9.85 per share in earnings this year. It says that it is well on track to hit $10 to $11 EPS in 2010, a goal it set several years ago. When your board of directors authorizes you to financially engineer this number from the cash the business throws off - rather than, say, invest in a whole new product line, or give bigger dividends to shareholders, or just sit on cash and make acquisitions like the failed Sun deal, which Big Blue walked away from as much because it couldn't afford it as it was worried about the deal going onto the antitrust rocks - it is hard to be impressed. But, then again, IBM is making profits that most other companies in the IT racket would kill for. So who's the dummy?

Certainly not the IBMers, like Palmisano, who are compensated in stocks. They are doing exactly what the system was designed to make them do.

IBM has $4.2bn left in stock repurchase authorizations on the books from this year, and now has another $5bn to go with it. And at the board meeting in April, the company's top brass will ask for more dough. It won't be long before IBM raises its target to $11 to $12 EPS for 2010, so its stock price can be pushed up even more. IBM's shares were up 1.3 per cent, to $121.67 each, in trading on Wall Street this morning after the news, giving the company a market capitalization of $157.5bn. IBM has not had a stock split since May 1999, and there is little question that the company would really like do to one again. There has been a strong psychological tendency in the market in recent decades to push IBM's stock up to $100 a share, so long as it is making money and not trying to go bust, as it was in the early 1990s.

The company also said this morning that James McNerney, who holds the titles of president, chief executive officer, and chairman at airplane manufacturer Boeing, has joined IBM's board of directors as its thirteenth member. McNerney has been at Boeing since 2005, and was in charge of electronic media giant 3M before that, and has had a number of executive positions at General Electric and Proctor & Gamble, where he is also currently a director. ®

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