IBM is a world-leading computer technology and services company after
successfully transforming themselves from a computer hardware supplier to a
diversified provider of enterprise software, services and hardware. They describe themselves as an innovation
company, where they pursue continuous transformation both in what they do and
how they do it—always remixing to higher value in their offerings and skills,
in their operations and management practices, and in the transformational
capabilities they deliver to their clients. They are in more than 170 countries,
leveraging the company’s global scale and expertise. They have excellent management, a
fortress-like balance sheet and are pursuing extremely shareholder-friendly
policies. In short, it’s difficult to
find a better long-term investment.
Key Financial Metrics
A few things really stand out to me regarding IBM’s financials: (i) a forward P/E of 10 - much lower than the 14x industry average - represents an excellent current value play; (ii) whereas their dividend payout ratio is modest, when compared with other top Blue Chips, when you add in their share repurchases, they are returning oodles of capital to their shareholders. Over the last 5 years, they have paid $16 billion in dividends and repurchased $60 billion of their shares. For a ~ $200 billion market cap company, this represents a massive return of value to its owners; (iv) they ‘walk the talk’ regarding innovation and re-creating themselves – check out the flat revenues growth line but the annually increasing net income line.
IBM has a corporate model of continuous transformation. In an industry characterized by innovation and commoditization (with associated strategy of lower prices and leveraging economies of scale), they chose to innovate, re-create and shift to higher value. Their top line (revenues) and bottom line (net income) demonstrates to me that they are successful in their strategy.
They are one of the best-positioned companies to serve the new era of ‘big data’ computing. Every two days, as much data is now generated as in all of human history up to 2003. IBM is the way to play this enormous trend.
IBM has a strong history of dividend paying & annually increasing dividend payments, making this company an great long term DRIP candidate.
Other Pertinent Facts
Quality of DRIP program: Fair (IBM only gets a Fair ranking due to
setup costs and ongoing investment fee, dividend reinvestment fee and sales
Am I an investor?
yes, DRIP investor since 2012
One word of caution - if you are investing $25 or
less per month, keep in mind IBM’s ongoing automatic investment fee of $1 would
devour 4% of your investment each and every time.
ranking out of ranking system of Poor, Fair, Good, Excellent.