IBM Boosts Dividend and Share Buybacks, What About i Marketing?

Published: May 3, 2010

by Timothy Prickett Morgan

The crack habit that is buying back its own shares to artificially prop up earnings per share numbers to appease Wall Street continued again last week as IBM's board of directors allocated another $8 billion in cash for this purpose. In an effort to get investors to pump up the stock, Big Blue also boosted its quarterly dividend by 10 cents to 65 cents per share.

In the first quarter, IBM blew $4 billion on share buybacks and another $700 million on dividends, so now its quarterly dividend nut will be 18 percent larger, at $826 million, or $3.3 billion per year. That's about a quarter of the company's net earnings. I wholly and enthusiastically approve of any company distributing profits as a dividend--in fact, as far as I am concerned, that is precisely what a portion of profits at any corporation are for, with the remainder to be saved for a rainy day or to do acquisitions.

"Our superior cash flow enables us to invest in the business and generate substantial returns to investors," IBM's president, chief executive officer, and chairman said in a statement. "Since 2003, more than $80 billion was returned through dividends and share repurchase. Our commitment to delivering value to shareholders has never wavered."

Well, yes and no. IBM is blowing a heck of a lot more cash on its own shares to show that EPS growth and to have shares to give to the top brass as compensation for firing tens of thousands of people in the United States and Europe and for offshoring jobs and manufacturing to cheap labor markets a job well done. Of that $80 billion, the vast majority went for share repurchases, which I think are not entirely without merit--just mostly without merit considering the other things that such large pools of money could be used for. With a tiny, miniscule, hardly noticeable fraction of those funds, the Power Systems i platform could have been revamped, opened up, and reinvigorated to a ridiculous scale over a decade ago. For instance. And been able to keep its AS/400 name, too.

IBM went on and on about how the quarterly dividend is up 330 percent since 2003, marking the 15th straight year that IBM has boosted the dividend, a quaint idea from a time gone by. IBM has paid dividends every year since it went public on the New York Stock Exchange in 1916, which is impressive. But the $2.60 per share that IBM was bragging about last week is still nowhere near the $4.84 per share per year IBM was shelling out in 1992 before Unix and PC servers clobbered the mainframe and AS/400 businesses, nearly driving Big Blue into bankruptcy. If I wonder about anything, it is why shareholders didn't demand that IBM pay out a similar dividend over those past seven years it was bragging about. Or, maybe even more. It is much more in line with the corporatocracy in America to buy back shares and then pay yourselves with them, as IBM's managers and board members do. Rather than get a real and reasonable paycheck and invest savings in stock like the rest of us schmoes have to do out here in the 21st century where the word pension is another quaint idea, like dividend.

I think IBM is looking to do a stock split next year, if its stock can get maybe above $150 or $175 a share, which would be a nice going-away present to Palmisano, who should retire next year on Big Blue's centennial if history is any guide. Palmisano will be over 60, and the funny thing is, there is no heir apparent at least from the outside of the company. I would not be surprised if someone is named president this year, as Palmisano was in 1999 when Lou Gerstner was getting set to retire. IBM has not done a stock split since 1999, and that is one way to grow the market cap of Big Blue and make a lot of people, not just the top brass at the company, a little more wealthy.

Here's a fascinating history of stock splits and dividend boosts at IBM through 1999. Unless this record is incomplete, IBM has done 15 stock spits--none in the 1910s, the 1930s, or the 1980s--such that 100 shares in 1916 have grown, just through splits, to 1.1 million shares by 1999. In 1916, according to this archive article in Time magazine talking about a split IBM did in 1968, at the time IBM went public, you'd pay $27.50 for an IBM share, or $2,750 for a block of 100. Based on the market price of $129.16 at the market close on Friday (April 30) for IBM shares, those original 100 shares in that Time article have grown in value through splits and Wall Street enthusiasm to $143 million, or more than a factor of 52,000 growth. That's a hell of a lot of money, even with inflation making a dollar worth a lot less in the past 10 decades, and just a staggering amount of growth.

Even if the stock price shouldn't matter more than building good computers, it is hard to not be impressed by that kind of growth.

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