Incorporated in 1911 and headquartered in Armonk, New York, International Business Machines (IBM) is an information technology company engaged in the development and manufacturing of advanced computer systems, software, storage systems and microelectronics.
IBM is a Dividend Contender with a streak of 19 years of dividend increases. It pays quarterly dividends in March, June, September and December. The current dividend is $1.10 per share, so starting yield on cost is 2.34%. IBM's 5-year dividend growth rate is a solid 14.26%.
With a 5-year Beta averaging 0.73, IBM's share price has performed reasonably well over the past 10 years, out-gaining the S&P 500 by a healthy margin:
Analysis of IBM
My fair value estimate of IBM is $204.00, so I picked up shares at a discount of 8.27%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.
IBM misses out on the following criterium:
- Debt to equity ratio less than 0.50 (2.65)
Other ratings for IBM
IBM is the top candidate in the Information Technology sector on my July dashboard of dividend growth candidates. This is my 3rd Information Technology holding in DivGro, along with INTC and MSFT. I don't plan to add any more stocks in the Information Technology sector.
IBM reported disappointing revenues in the first quarter of 2014, although earnings per share were in line with expectations. EPS declined by 15% from the year-ago quarter, due to a lower revenue base and a significant increase in total operating expenses. IBM faces faltering hardware sales, sluggish IT spending and challenges in emerging markets, especially in China.
On the other hand, IBM remains a highly profitable company that generates a lot of free cash flow. It has been returning cash to shareholders for many years. Since 2000, IBM has returned about $138b to stakeholders in the form of dividends and share buybacks.
IBM is focussing on growth in high-value segments, particularly software, which is expected to drive overall growth in 2014 and beyond. The newly launched Watson group has significant growth opportunities, which, along with initiatives in big data and business analytics, cloud computing, smarter planet, mobile, security and social business, are expected to help IBM achieve an earnings target of $20.00 per share by fiscal 2015.
IBM has an impressive foundation of intellectual property on which to base innovative products and services. The company has secured the most U.S. patents for 21 years in a row, with 6,809 patents being awarded in 2014, a new annual record. The latest patents underscore the type of markets IBM is trying to enter. One invention allows Watson, IBM's cognitive technology that can analyze vast amounts of data and answer questions posed in English, to better assess questions and determine confidence in the accuracy of an answer. IBM generates about $1 billion a year in licensing revenue from its patents portfolio.
14 shares of IBM adds $61.60 of expected dividend income, increasing DivGro's projected annual dividend income to $4,451.12.
IBM is the 32nd holding in DivGro.
Full Disclosure: Long INTC, MSFT
Thanks for reading! IBM is one of the most popular holdings among dividend growth investment bloggers. Do you own IBM, or are you planning on buying shares soon?