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IBM hikes dividend, boosts share buybacks by $7bn

Still not the Big Blue cash machine of the mainframe era

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At this rate, in about 25 years IBM will be a privately held company.

IBM's board of directors, which is always ready to let Big Blue's upper management go down to the New York Stock Exchange with dump trucks full of cash to buy up shares to retire them, has done it again. The board has authorized another $7bn in share buybacks, adding to the $5.7bn in purchase authorizations that was still on the books. The company's top brass also said in a statement that they would seek even more authorizations at the October 2012 board meeting to keep the share buybacks a-humming.

IBM has spent a whopping $137bn since 2000 buying back its shares and paying dividends, and since that time it has retired about a third of its shares.

Considering that the company wants a rising stock price, since its top executives receive most of their compensation in shares and that means a pay raise for them, IBM has no intention of going private. And it is also a payday for investors when IBM buys the stock back from shareholders. So this share buyback scheme is just too good of a way to get paid to give up. Moreover, IBM grades itself on operating earnings per share growth now – not even actual earnings per share, as it used to – and it is thus highly motivated to engineer at least some of its EPS figures through share repurchases.

But at some point, pretty far into the future, IBM will run out of shares. At IBM's current market capitalization, the 1.16 billion outstanding shares of the company add up to just a little over $230bn. IBM's shares were trading at a low of $58.31 in September 2002 and with a few fits and starts have been bouncing around $200 in recent weeks.

If IBM shares keep climbing at the current pattern – which they have been holding for the past decade – the firm should be able to double its share price in the next decade, with some sawtoothing every couple of years as things go wrong – and they will. Big blue could also remove another half billion shares from its public float and still end up with the same market capitalization as it has today when it is all over.

The question is whether IBM's current or future management will be tempted to do a stock split if the shares stay much higher than $200. With Apple shares trading at $565 and Google at $605 as El Reg goes to press, there is a perceived value to a high stock price and IBM may want to let its shares ride up to $300 and then $400 over the next decade to get some sort of halo effect.

Just for a contrast to today, recall that back in May 1968, when IBM did a killer stock split, Big Blue was the blue chip stock on the NYSE, with its shares trading at $688 a pop. It had 60 million shares at the time, and the redistribution of 120 million shares was the largest split in history. Back then, IBM was enterprise computing, more or less, and it paid out $4.54 a share per year in dividends. Adjust that stock price for inflation, and it is on the order of $4,500 a share before the split – and that dividend spent something like $30 in today's 2012 dollars.

But today, after Big Blue's near-death experience in the early 1990s, where it didn't understand that the mainframe was going to get eaten by swarms of PCs and Unix servers, the company is crowing like a Chanticleer that it is boosting its quarterly dividend by 10 cents, to 85 cents a share. That's a cool $3.40 a share. And while that may sound like a reasonable amount of dough (and it is compared to other stocks), if you adjust that back to 1968 dollars, you are talking about 52 cents a share after deflating it. Good luck trying to live on that, widows and orphans. ®

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