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IBM bumps up dividend – again

More financial – not computer – engineering

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IBM, the original IT darling of the New York Stock Exchange, has once again boosted its cash dividend and piled up billions more cash to run down to the exchange to buy back its own shares.

On Tuesday, the company's board of directors approved a 15 per cent increase in IBM's quarterly dividend – a dime per share – to 75 cents. This is the sixteenth year that IBM has increased its dividend, which has quintupled since 2003. The board also said that IBM could set aside another $8bn to do share repurchases, adding to the $4.7bn that it already has authorization to spend to concentrate its shares and boost EPS figures.

Moreover, IBM said it expected that when the board meets again in October, IBM president, CEO, and chairman Sam Palmisano expects to ask the board to authorize even more cash for buybacks – no doubt because the company's shares will continue to rise and each share is going to get progressively harder to recapture.

"Since 2003, we have returned over $100bn to shareholders in the form of dividends and share repurchases, while continuing to invest in capital expenditures, acquisitions and research and development," Palmisano said in a statement announcing the dividend boost and share repurchase authorization. "Our commitment to delivering value to our shareholders remains as important today, as it has ever been."

Clearly, what IBM needed to do was spend $100bn on a time machine, or at least something that could communicate across the fabric of spacetime to prevent Big Blue from making the serious blunders it did in the 1980s and 1990s.

IBM was a genius at electromechanical engineering, so it is no surprise that the company has been able to play Wall Street so well, engineering earnings-per-share growth by buying back shares for nearly two decades. Regardless of the other things that IBM might have done with that $100bn in cash – or the many tens of billions is spend in the decade before that doing the same thing – with executives being compensated largely with stock, and with Wall Street wanting to see IBM's earnings growth continue even if revenues flatline, this is about the only strategy anyone could reasonably expect. You get the results that you set metrics for and reward.

As El Reg goes to press, IBM's shares are kissing $169 a pop, giving Big Blue a market capitalization of $205.9bn with 1.22 billion shares outstanding.

While IBM is beating its chest about how well it has done since 2003, it always bears remembering that IBM was once the bluest of the blue chip stocks, as I pointed out when IBM raised its dividend a year ago. IBM has been paying quarterly dividends since 1916, and in 1992 – before the company's mainframe business went on the rocks and Unix competitors started eating into its proprietary systems business – IBM was paying out $4.84 per year in dividends.

At the current rate set today, IBM is up to $3 per share for dividends, and has a long way to go to get back to what was once normal. Of course, if it bought fewer of its shares and paid a higher dividend, at this point that might be a better way to boost the stock. Buying back shares when they are trading at $50 or $75 is one thing, but at $170, it takes around three times the cash to have the same EPS effect.

If you want to think about just how powerful IBM used to be on Wall Street, just think about its May 1968 stock split. IBM had 60 million shares on NYSE at the time, and just ahead of the split its shares were trading at $688, more than doubling ahead of the split; IBM's shares traded at 59 times 1967 earnings in those mainframe salad days, and it paid out $4.54 a year in dividends.

Oh, and it didn't do share buybacks. It invested in technology and was a ruthless monopolist. IBM engineered its machines and its business in those days, not its financials. ®

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