IBM’s Misguided Share Repurchase

I think these things are specifically done to annoy me.

IBM ($IBM) has been doing very well lately. The stock recently made an all-time high. The company just reported earnings that beat expectations by six cents per share. They also announced another 75-cent dividend.

So what’s the problem?

Technology company International Business Machines Corp. said Tuesday that its board authorized an additional $7 billion for the company’s stock repurchase program.

That’s on top of about $5.2 billion remaining in a prior buyback program at the end of September.

IBM plans to ask its board for additional repurchase authorization at a board meeting in April.

I loathe share buybacks and this is an excellent example of why. IBM’s program comes to $12.2 billion which is more than $10 per share. Of course, that’s just what’s announced. We don’t know what will be implemented.

My view is simple: just give that money to shareholders! It’s theirs!

I think most shareholders would much rather have $10 in hand than have the hope that company purchases will push the shares up by $10. Plus, shareholders are watching their money buy a stock that’s already near an all-time high.

Just give them the money as a dividend and if they want to buy more stock, they can. The current dividend comes to $3 per year which is only 22% of this year’s estimated earnings.

A better idea would be for the board to ditch the buybacks and chose a target, say 30% of full-year earnings to pay out as dividends. For next year that would be a dividend of $1.10 per share.

I should add that I’d like to see the U.S. tax laws changed so it doesn’t make a difference how shareholders get their own money.

Posted by on October 26th, 2011 at 1:54 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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