12-13-2013, 09:56 PM
(12-13-2013, 06:58 PM)Kerim Wrote: I’m not that familiar with IBM, so I can’t speak about its moat or competitive advantages. I just ran it through my screen, though (it had not been on my watch list previously), so I can share what I see in the numbers.
IBM has raised its dividend for 18 years in a row now, giving it a very healthy dividend streak. Seems like the default raise lately is 40 cents each year, except for smaller raises in 2008 and 2009, for obvious reasons. The five-year dividend growth rate is very solid, around 14 percent, but by raising the dividend the same amount every year, the percentage increase will naturally decline. The raise from 2012 to 2013 was just over 12 percent. If they raise by another 40 cents in 2014, that will represent an increase of 10.8 percent.
The payout ratio is a nice low 25 percent, so there is plenty of room to accommodate the growing dividend, and perhaps even increase the dividend growth rate back up a bit.
IBM’s earnings per share for the last 5 or six years have increased very steadily. Almost suspiciously steadily, really, with double-digit increases from $7.15 in 2007 to $14.37 in 2012 (using GAAP numbers). Earnings increased steadily through the 2008 and 2009 turmoil. 2013 earnings look like they will beat 2012, but by a smaller margin than in recent years, and it might be the first earnings increase of less than 10 percent in quite some time.
At prices in the low to mid $170s per share, the P/E ratio is low, around 12. This is the lowest the P/E has gotten since some time in 2010.
If you like a high current dividend yield, that is perhaps the weak link in the chain of this story. At today’s prices you are looking at a yield of about 2.19 percent. Not too exciting, but also worth noting that this is the highest the yield has been since 2010. This might suggest a good entry point if you think the company’s earnings prospects going forward are fine.
I’d also love to hear from anyone who has some insight into the company’s moat and competitive advantages. If the story is good and suggest continued health and earnings growth, the numbers certainly support IBM as an excellent dividend growth prospect.
I don't know much about IBM but I thought I read that their revenue has been declining for several years. Their EPS is going up mainly from share buy backs and expanding margins. I could be wrong though.