IBM, the original IT darling of the New York Stock Exchange, has once again boosted its cash dividend and piled up billions more cash to run down to the exchange to buy back its own shares. On Tuesday, the company's board of directors approved a 15 per cent increase in IBM's quarterly dividend – a dime per share – to 75 cents. …
Goosing the golden goose
Remember that revenues are flat and the rising share price and dividends come from a corporation eating itself. Fat Sam and his pals are sucking the marrow out, and when it all collapses (after the centennary, Sammy's retirement, or 2015 EPS target year), IBM will be another one of those "where did all go wrong stories".
From an economics perspective
It's pretty solid.
Large companies aren't the best at innovating, so there's no guarantee at all that spending that large cash pile on research and development would give the same shareholder return that a direct cash transfer to them will.
Those shareholders can then invest the money in whatever innovative smaller companies they want and try to find better returns.
If IBM are acknowledging that they're too big and too cumbersome to react quickly to new market opportunities, then I wouldn't be too upset as a shareholder.
The problem only comes if stupid people think that the earnings growth can go on forever and pump up the price too far but given that IBMs price/earnings ratio is 14 I don't think that's a big worry.
So what's the problem?
investment in tech vs investment in .. investing.
Further, the likelyhood of a $10,000,000,000 investment in R&D returning 100 times what the investment of $100,000,000 does is pretty slim...
A steady decline
Yep, for the rest of us, suffering yet another year of increasing demands, yet cuts everywhere imaginable (I don't even have a telephone that works properly) and redundancies galore, it's good to know that Sam's going to get a big fat pension.
The business is close to actually only being worth the value of the employees, as most of the assets have gone, and what's left is hopelessly overvalued. It's the financial crisis played out in a company.
Keep Which Asset?
Should IBM retained Lexington-- Typewriters? San Jose-- Disk Drives? Raleigh-- PCs or Endicott-- Punch Card EAM?
How IBM works.
"Are there any areas left where we can act now to maintain a significant lead over Apple?"
"We could give away more money to our investors. They don't do that at all."
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