With rival and former fiancée Sun Microsystems reporting its what are sure to be embarrassing financial results later today, today is a perfect day for IBM to rub it in extra hard. So Big Blue has announced it is boosting its dividend, while allocating another $3bn to buying back its own shares. Today is also quarterly …
Shareholders rake it in due to layoffs
Big bucks for the investors, pink slips for the grunts. I know many people who have been laid off in the last few months from Big Blue. Bet the payback on the Employee stock plan doesn't make up for the lack of job for anyone who is looking for work in this stellar job market.
This behavior shows why EPS is a discredited metric
Is it difficult to buy shares? Nope. Is it difficult to buy your own shares? Not once you've board approval.
And it's because it is so easy to reduce the number of shares on the market by buying back your own shares that Earnings Per Share is such a disregarded measure.
If you use your money to buy back shares, you may get a small, one-off boost to your share price due to the tax treatment of buybacks. But thereafter the positive effect is all in the past.
If, on the other hand, you use your money to invest in developing products or buying a company, you could get a continuous stream of beneficial effects in the future, and not just financial ones.
Companies that routinely buy back their shares are admitting they're out of ideas. Or they just won't take the risk of developing new products.
The typical person owns a part of a company in order to gain some financial advantage.
The financial reward is either a dividend or an increase in the share prices (or both).
Many naive investors (and many who are forced into baskets of stocks in 401Ks in the US) own shares in what amount to moribund companies that are both not growing (in the stock valuation sense) and not throwing off dividends. This is folly, a sheer waste of investment, one might as well stuff the mattress with euros and greenbacks.
Indeed, with the pathetically low cost of borrowing today, it is an excellent investment to use borrowed cash to buy stock in companies throwing off reliable dividends. Do you sense a bubble? Indeed you do, but few investors, even the "hot cash" ones, have a big enough todger to take the plunge (for foolish reasons they seem to still cower in the negative return Treasuries). Well, she is waiting-- and if you can borrow long it is nearly a no lose situation (one can hedge out the potential for a base stock loss, but this reduces the fat bottomed payback).
One can be a fluffy being fleeced, or be a wolf running through the emasculated sheep flock. If you don't ride the bubble up you'll miss out-- AGAIN! If the FED and the ECB and the BoJ want to load money at far less than the dividend pay back rate, well, what is anyone waiting for?
...unless IBM decides to take over a government somewhere.
"unless IBM decides to take over a government somewhere."
They certainly could. They had more Profit than Jamaica had GDP.
Apples and oranges
Don't want to get all serious on you, but what's the point in making EPS comparisons without understanding what share splits happened in the intervening years?
I appreciate that inflation is working in the other direction but I'd like to believe that a typical El Reg reader would understand that, but wouldn't know that 1 IBM share in 2009 isn't equivalent to 1 share in 1992.
- Product Round-up Smartwatch face off: Pebble, MetaWatch and new hi-tech timepieces
- Geek's Guide to Britain BT Tower is just a relic? Wrong: It relays 18,000hrs of telly daily
- Geek's Guide to Britain The bunker at the end of the world - in Essex
- Review: Sony Xperia SP
- FLABBER-JASTED: It's 'jif', NOT '.gif', says man who should know